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Transmeta Finally Hits the Wall

Transmeta Finally Hits the Wall

Transmeta, that five-year-old noble experiment in software-based chip design awash in a sea of red ink, looks close to declaring itself shipwrecked and hopelessly marooned.

On Tuesday it put out a statement that came close to admitting that it's going to abandon the processor business in favor of trying to license its IP.

The statement said Transmeta's management "will complete a critical evaluation of the economics of its current business model of designing, developing and selling x86-compatible microprocessor products including its Crusoe and Efficeon families" this month - apparently by Friday January 21.

It also said that "By modifying our business model to focus more on our licensing opportunities, leveraging our substantial IP portfolio and our R&D capabilities, we would expect to reduce our cash needs substantially and to improve our results for our shareholders."

The number of its shareholders dropped in the wake of the announcement. Its stock price was cut by 60 cents to a buck a share and its market cap, after a 13% rally, is now only $199 million, less than what Transmeta IPO'd for back at the end of 2000 when it opened for $38.44.

Wall Street thinks the strategy shift wouldn't be able to maintain even the dismal revenues the company has been doing.

Last year NEC Electronics and Fujitsu, which makes Transmeta's processors, licensed Transmeta's LongRun2 power management and transistor leakage control technology. As cut, the deals include deliverable-based technology transfer fees, maintenance and service fees and royalties on the products that incorporate the technology.

Transmeta says it's in active discussions regarding "strategic alliance opportunities." It's using San Francisco investment bank Perseus Group LLC.

Piper Jaffray figures Transmeta will need equity investment to soldier on. The broker's back-of-the-envelope ciphers estimate a processor-less Transmeta would be worth about $100 million.

Transmeta's problems have been aggravated by limited quantities of its 90nm 1.6GHz Efficeon processor.

The timing of Transmeta's announcement is ironic considering RLX Technologies, the blade pioneer that was the first server outfit to try to use Transmeta's low-power chips, an experiment it later repented of, just abandoned hardware altogether to focus on its management software.

Transmeta said the fateful review of its business that it's conducting includes evaluating its customer requirements and the economics and competitive conditions in the x86-compatible market.

The anticipated change is expected to tear a big piece out of the company's 325-man workforce and in turn require significant severance fees.

To try to attract OEMs to its platform, Transmeta used the Consumer Electronic Show in Vegas to tout Efficeon as the centerpiece in these newfangled media center devices. With Efficeon they can go quietly fanless, Transmeta said, showing off a few prototype designs it figures are ideal for the parlor.

It said it was developing a Digital Entertainment Center reference design and evaluation platform to get OEMs to market quickly. It's supposed to be available this quarter and would put an 1.6GHz Efficeon 8820, an ATI Radeon 9550 visual processing unit and a full-featured ULI M1563 southbridge on a compact motherboard that had PCI expansion capabilities for TV tuners, 10 USB ports and the outputs necessary for high-quality audio/video. The widgetry will support both Microsoft XP Media Center Edition 2005 and Linux. Microsoft lent its support to the faltering wannabe.

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