Nvidia Corp., a leading designer of graphics processors and system logic, announced Monday that it would acquire PortalPlayer, a developer of application processors and software, a company which chips power popular digital media players, including several Apple iPod models. The deal will allow Nvidia to enter the market it has been trying to penetrate for several years.

“With this acquisition, we are combining the two essential technologies of next-generation PMPs, PDAs, portable game players, and phones: PortalPlayer’s innovative application processor technology and NVIDIA’s industry-leading GPU technology. With the products created through this combination, we intend to drive the next digital revolution, where the mobile device becomes our most personal computer,” said said Jen-Hsun Huang, president and chief executive of Nvidia.

As a single company, Nvidia and PortalPlayer will be able to provide makers of digital media players fully-integrated platforms for their multimedia devices, which should add another revenue stream for the Santa Clara, California-based developer of graphics processors. However, acquisition of PortalPlayer and starting the new business means that Nvidia will have to compete against rivals [in the market of chips for portable media players] using product and technology portfolio only and will not be able to capitalize on its brand-name. The company has been working this way in the market of graphics accelerators for personal digital assistants and cell phones as well as on the market of graphics processors for game consoles.

While the latest generation of iPod music players does not use chips from PortalPlayer, Microsoft Zune is projected to utilize PortalPlayers chips.

Under terms of the agreement, NVIDIA will pay $13.50 in cash for each outstanding share of PortalPlayer common stock, which represents a total purchase price of approximately $357 million, or approximately $161 million net of cash on PortalPlayer’s balance sheet as of September 30, 2006. The purchase price represents approximately a 19% premium to the 20-day average closing price of PortalPlayer through Friday, November 3, 2006. This acquisition has been approved by the Board of Directors of each company and is subject to regulatory approvals and other customary closing conditions.

“We are excited about the next chapter in our corporate history,” added Richard Sanquini, chairman of the PortalPlayer Board of Directors. “We believe the deal is a win-win for our employees and shareholders. We have spent the past several months extensively exploring our strategic options. We feel the advantages offered by the NVIDIA acquisition are the most compelling, and that our customers and employees will benefit from NVIDIA’s strong position in handheld GPU technologies and its vast resources and global reach.”