RealTime IT News

A Transition at Transmeta

Officials at Transmeta are expressing sadness, with a hint of optimism, for having to change their business model.

The Santa Clara, Calif.-based firm that once boasted Linux creator Linus Torvalds on its payroll is cashing out its chipmaking business to save itself and is transitioning to a technology and intellectual property licensing company.

Transmeta CEO Matthew Perry said the company has suspended production of its 130-nanometer (nm) family of Efficeon and Crusoe processors and will sell its current inventory. The company will continue to develop its new chips, including its 90-nm process products to its "select customers" only.

Perry said Transmeta received a wealth of positive feedback in support of its technology. After two years of establishing the new revenue stream, Perry said the time had come to do things differently.

"We want to assure our customers that it is our intent to support their near- and intermediate-term needs, either directly or through some form of strategic collaboration," Perry said during a conference call.

Beyond the designs for its Efficeon and Crusoe chips, Transmeta is offering licenses for its Microsoft-enhanced AntiVirusNX technology; both of its battery and transistor power management enhancements LongRun and LongRun2; and its Code Morphing tools. So far, most computer makers are interested in saving power. In addition to NEC and Fujitsu, Transmeta said it has licensed LongRun2 to Sony.

Perry said Transmeta is also engaged in discussions with other top-tier companies about the its microprocessor designs and development capabilities, as well as its intellectual property.

The update to Transmeta's plans to modify its current business model highlight just how far down the company has slipped in the past year -- a far cry from the rebel days that had rivals Intel and AMD taking note of Transmeta's low-power, x86-based architecture.

Transmeta's cash balance at the beginning of 2005 was $53 million, nearly 60 percent down from $130 million a year ago. The company's last SEC statement shows 12 consecutive months of operating losses, from $28.7 million in December 2003 to $21.9 million in November 2004. The company also spent a record $13.7 million in R&D last quarter, even though it only showed $4.3 million in gross profit.

As part of its overall restructuring plan, Transmeta will reorganize its operations on March 31 and keep only those business divisions it plans on riding out the storm with. Because of that, Transmeta said it has notified employees and contractors that it may reduce its staffing as early as March 31. As part of its effort to retain employees during this interim period, it has put in place an appropriate retention program.

"A lot has to transpire here over the next couple of months. In the event we are unable to close a number of things, we will look to see that some, if not all, of the current employee resources are not affected by the March 31 action," CFO Mark Kent said.

Financing and restructuring mitigated some of the financial bleeding. During the fourth quarter, Kent said Transmeta paid off a development contract with IBM, including paying $4 million that it owed IBM in December and an additional $7 million to defer the rest of its debt of $5 million to Big Blue until June 30, 2006. Transmeta also raised $16 million with the sale of some common stock in November, Kent said.

One option being discussed publicly outside of Transmeta is putting the company up for sale.

"I'd bet on Intel or Samsung, with Microsoft only interested if they fully understood the Linux threat this would represent should it fall into hostile hands," Rob Enderle, principal analyst and founder of IT research firm Enderle Group, said. "VIA could be very interesting but I don't see them funded to a level to do this. Fujitsu hasn't been much of a player for some time, so I actually would bet more on Samsung who has been coming up fast, seems willing to take chances like this, and would likely both see the potential here and have the resources to take advantage of it."

Linley Gwennap, founder and chief analyst of semiconductor research firm Linley Group, doubts a fire sale is in the chips for Transmeta.

"I don't think it would make sense for Intel or AMD, which have their own mobile processor architectures, to adopt Transmeta's, which, after all, has been unsuccessful in the market," Gwennap told internetnews.com. "Microsoft does not want to be in the CPU business, nor does HP. It is possible that Fujitsu or another Asian IC house could pick them up, but most of them do not want to butt heads with Intel in the PC market."