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Letter to the SEC

 August 17, 2004

 VIA FACSIMILE

 Securities and Exchange Commission

 Division of Corporate Finance

 Judiciary Plaza

 450 Fifth Street N.W.

 Washington, D.C. 20549-8088

 Mail Stop 03-06

Attention:
Mr. Adélaja Heyliger

Re:
Form S-1 Registration Statement of PortalPlayer, Inc.

Commission File No. 333-117900 filed August 3, 2004

 On behalf of PortalPlayer, Inc. (the “Registrant”), we are writing to provide the staff (the “Staff”) of the Securities and Exchange
Commission (the “Commission”) with supplemental information concerning the pricing of stock awards of the Registrant described in the above-referenced registration statement (the “Registration Statement”).

 As reflected in the consolidated financial statements of the Registrant,
during the six months ended June 30, 2004, the Registrant recognized a stock-based compensation charge of $3,637,000. This charge consists of four elements summarized below and explained in more detail in the remainder of this letter:

1.
$984,000 for the issuance of employee stock options with exercise prices less than the fair value of the Registrant’s common stock at the date of grant. The Registrant
continues to amortize the unearned portion to stock-based compensation expense as the related options vest.

2.
$711,000 of stock compensation expense associated with the fair value of the vested portion of a stock award which the Registrant granted to a Board member in connection with his
management services to the Registrant. The remainder of the award vested in July 2004.

3.
$353,000 for the estimated value of a contingent bonus award granted to an officer of the Registrant for services rendered between January 1, 2004 and June 30, 2004.

4.
$1,589,000 in connection with the increased fair value of preferred stock that was issued to a director of the Registrant in connection with a consulting arrangement. The consulting
arrangement was terminated in July 2004.

 As
reflected in the consolidated financial statements of the Registrant, during the year ended December 31, 2003, the Registrant recognized a stock-based compensation charge of $473,000. This charge consists of the compensation charge associated with
the preferred stock mentioned above in item #4.

 1

 The purpose of this letter is to explain the factors underlying the valuation of these awards and the
assumptions the Registrant has made in accounting for such awards and options.

 Registrant Overview

 The Registrant
designs, develops and markets comprehensive platform solutions, including a system-on-chip and firmware, for manufacturers of personal media players. The most popular current version of these devices is commonly known as an “MP3 player”.
The development of these system-on-chip and firmware solutions is time-consuming and includes significant risk as the consumer electronics market is characterized by rapidly changing technology continuously requiring improved features, such as lower
power or smaller size. Only a continuous development of new platforms or other products and enhancements for existing platforms enables the Registrant to keep pace with evolving industry standards and rapidly changing customer requirements.

 The Registrant commenced operations in May of 1999. Since
inception, the Registrant has focused on the following four main areas:

•
Technology: development of underlying chips and firmware.

•
Funding: fundraising to support the technology development efforts.

•
Operations: commencement of sales and marketing efforts of its initial products and subsequent generations of the products, as well as defining a cost structure that could
support the revenue streams which included two restructuring initiatives in August 2002 and January 2003 with significant headcount reductions.

•
Management and Corporate Development: building a management team and development of corporate identity and structure.

 Initial public offering

 Based on discussions with various investment banks during the underwriter
selection process, the Registrant developed a preliminary valuation for a current implied pre-money equity value of the Registrant as of the date of the filing of the Registration Statement. In the absence of a fair market value evidenced by an
actual arm’s length transaction in the Registrant’s stock, the Registrant considered many factors including the results of its operations, market conditions, competitive position and the stock performance of competitors, especially of more
recent comparable semiconductor IPOs, to approximate its current pre-money equity value for the purpose of preparing financial statements for the Registration Statement.

 2

 Based on input received from various investment banks during the underwriter selection process, the
Registrant applied P/E based trading multiples of comparable publicly traded companies in its valuation models. The Registrant used its financial forecasts for the years 2004 and 2005 as originally presented to the Board and later updated during the
analysis period as a basis for the earnings used in this P/E based valuation.

 The prices for technology stocks, and stocks of competitors of the Registrant in particular, have recently experienced significant fluctuations. Some comparable companies have experienced an overall significant
decline of their valuation based on P/E trading multiples, especially in the most recent weeks of between 20% and 40% as the stock markets have experienced an increased instability with higher than usual volatility. In addition, the Registrant has
not received third-party verification of an estimated filing range for its potential public offering and has determined its valuation for the purpose of valuing equity awards based on currently available comparables in models similar to those
presented to the Registrant during the underwriter selection process.

 When preparing the recently filed Registration Statement, the Registrant performed similar valuations for certain other points in the past that represented important milestones in its corporate development such as the change in management,
the ramping of sales to its most significant customer, the establishment and subsequent revision of certain annual operating plans and Board of Directors’ decisions leading to the ultimate approval of the registration of a public offering of
the Registrant’s stock.

 Fair market values and exercise prices

 Based on its analysis, the Registrant believes that the
fair value of its common stock moved within the range of $0.15 to $3.56 per share for the period from mid 2003 through July 2004. The fair values of the Registrant’s common stock for certain periods were as follows:

 Date Range

Price

 through June 2003

$0.15

 July 1, 2003 through December 31, 2003

$0.15 - $1.07

 January 1, 2004 through March 31, 2004

$1.07 - $2.95

 April 1, 2004 through July 31, 2004

$2.95 - $3.56

 Inception to June 30, 2003.

 The Registrant was founded by seven individuals, two
of whom are currently members of the executive management team. From inception through the third quarter of 2001, the Registrant’s operating activities related primarily to developing and testing

 3

prototype products, assembling the sales and customer service organizations, establishing relationships with customers and obtaining funding to support this
development. The Registrant shipped its first product in the fourth quarter of 2001. Due to the slow development of the market addressed by its initial products and the very limited number of customer relationships, sales were limited. Net revenue
was minimal during this period, totaling $1.9 million, $8.8 million and $6.1 million in 2001, 2002 and for the six months ended June 30, 2003, respectively. The Registrant incurred net losses of $25.3 million and $22.5 million in 2001 and 2002,
respectively, as well as a loss of $6.5 million during the six months ended June 30, 2003.

 Driven by concerns about the rate of cash consumption and the slower than anticipated development of the target market, in August of 2002 and again in January of 2003, the Registrant initiated headcount reductions and
restructuring initiatives which resulted in a reduction in staff of approximately 60 people – a total of approximately 1/2 of its staff. The Registrant missed its 2002 revenue goal of $18 million by more than 50%. The financial statements for
the year ended December 31, 2002 included an explanatory paragraph in the opinion of the Registrant’s prior accounting firm indicating that there was substantial doubt about the Registrant’s ability to continue as a going concern.

 Revenue during the first quarter of 2003 dropped by more than
75% compared to the previous quarter. In the first half of 2003, industry analysts reduced their estimates of the total available market for the Registrant’s products for 2003 by almost 30%, with no significant quarter-over-quarter growth rates
for the second half of the year.

 During 2002 and into the
first half of 2003 the Registrant’s management team was subject to significant instability and changes. Key personnel, including both the Chief Executive Officer, or CEO, and the Chief Financial Officer, or CFO, left the Registrant towards the
end of 2002 and the Chairman of the Board assumed interim CEO responsibilities until a new CEO was appointed in May of 2003. In addition, a Chief Operating Officer, or COO, who had started on a consulting basis during 2002, remained with the
Registrant until the new CEO started.

 During the period from
inception to June 30, 2003, the Registrant issued and sold the following series of securities (excluding shares issued upon the exercise of stock options and reflecting stock splits affected subsequent to the initial sales):

•
October 15, 1999: 33,331 shares of series A preferred stock at $150.00 per share;

•
February 7, 2000 through March 7, 2000: 16,508 shares of series B preferred stock at $601.50 per share;

•
December 7, 2000 through February 22, 2001: 19,850 shares of series C preferred stock at $531.00 per share;

•
December 12, 2001 through May 28, 2002: 28,675,989 shares of series D preferred stock at $1.515 per share (of which 19,994,397 shares were subsequently converted into an equivalent
number of shares of series E preferred stock as noted below); and

 4

•
May 10, 2002: A provision within the series D purchase agreement enabled Series D investors who held series B or series C preferred shares to exchange a number of their series B
and/or series C preferred shares for an equal number of shares of a newly created series B-1 and/or series C-1, respectively (the “Exchange Provision”) as defined in the purchase agreement. As a result of the Exchange Provision, a total of
2,924 and 24,555 shares of Series B and Series C preferred shares were exchanged into an equal number of shares of Series B-1 and Series C-1, respectively.

 The sales of the preferred stock listed above were to accredited investors in arm’s–length transactions. Sales of
the series D preferred stock included several significant investors who had not previously purchased the stock of the Registrant. The significant decline in the price of our series D preferred stock from the price of our series C preferred stock was
due to the severe decline in the public markets and private valuations following the events of September 11.

 In reaching a determination of the fair value of the common stock relative to the preferred stock, one of the factors the board of directors took into
consideration was the Registrant’s capital structure, including the classes and characteristics of its convertible preferred stock, such as the rights of the preferred holders to non-cumulative dividends when and if declared by the board of
directors and the liquidation preferences and the voting power of preferred stockholders, who vote on an as-converted basis, relative to common stockholders. Additionally, until the Registrant’s initial public offering is completed, its
preferred stockholders, voting together as a class, have the right to elect five of the eight members to the board of directors. The common stockholders have the right to elect one member to the board of directors and the preferred and common
stockholders, voting as a single class, have the right to elect the remaining two members of the board of directors.

 The Registrant believes that the preferences enjoyed by holders of its preferred stock are, and continue to be, substantial and support a significant
valuation differential between the common stock and the preferred stock.

 In consideration of the preferred equity structure and the sales of the series D preferred stock at $1.515 per share, uncertainty about market success of the Registrant’s products as well as the industry and the
incomplete nature of the Registrant’s management team, the Registrant determined that the fair value of its common stock during this period was de minimus and continued to believe that the exercise price of $0.15 for options, adjusted after a
150 to 1 reverse split, which had been set by the Board of Directors in the Board meeting on July 11, 2002 was the fair value. At that time, the Registrant had no prospect of successfully offering shares of its common stock publicly and accordingly
there was no plan to engage in such a public offering. The more likely outcome for a liquidation at this time was a sale of the Registrant. In the event of a sale, approximately the first $140 million would have been paid to holders of the preferred
stock.

 5

 July 1, 2003 to December 31, 2003

 After a relatively disappointing first quarter of 2003, the second quarter of 2003 met management’s original
expectations. The third and fourth quarter developed more positively than expected, both by the Registrant and industry analysts. Revenue increased steadily by between 20% and 30% quarter-over-quarter in the second half of the year 2003.

Quarter Ended

 Sept. 30,

 2002

 Dec. 31,

 2002

 Mar. 31,

 2003

 June 30,

 2003

 Sept. 30,

 2003

 Dec. 31,

 2003

 Mar. 31

 2004

 June 30,

 2004

 Net revenue

$
3,231

$
3,722

$
922

$
5,146

$
6,788

$
8,083

$
10,196

$
12,035

 Cost of revenue

2,170

2,322

551

3,191

3,493

5,039

6,588

6,915

 Gross profit

1,061

1,400

371

1,955

3,295

3,044

3,608

5,120

 Operating expenses:

 Research and development

4,812

3,711

3,190

2,709

2,791

2,413

2,608

2,986

 Selling, general and administrative

2,099

2,136

1,387

1,219

1,194

1,272

1,446

1,345

 Stock-based compensation

199

118

118

118

118

119

1,977

1,660

 Total operating expenses

7,110

5,965

4,695

4,046

4,103

3,804

6,031

5,991

 Operating income (loss)

(6,049
)

(4,565
)

(4,324
)

(2,091
)

(808
)

(760
)

(2,423
)

(871
)

 Other income (expense), net

96

(26
)

(26
)

(50
)

12

1

12

(9
)

 Net income (loss) before income taxes

(5,953
)

(4,591
)

(4,350
)

(2,141
)

(796
)

(759
)

(2,411
)

(880
)

 Provision for income taxes

 Net income (loss)

$
(5,953
)

$
(4,591
)

$
(4,350
)

$
(2,141
)

$
(796
)

$
(759
)

$
(2,411
)

$
(880
)

 Initially targeted to
be in full production in the second quarter of 2003, the Registrant ramped its latest product generation in December of 2003 providing the follow-on product required to maintain the key customer relationships for the near term future. Because the
Registrant’s products are designed for use in consumer electronics products, the business is subject to seasonality, with increased revenue typically in the third and fourth quarter of each year when customers place orders to meet year-end
holiday demand. Revenue in the fourth quarter increased by almost 120% over the fourth quarter from a year earlier. However, management was uncertain as to its ability to extrapolate from this quarter’s data to future performance, especially
due to the potential seasonality effect.

 In December 2003, the
Registrant developed and the Board of