| | Read this from Fridays WSJ...has the feel of the way Palm
rocketed and then crashed and burned after reality overcame
the hype...just my opinion...
November 3, 2000
Transmeta's Latest Setback
Stirs Cautions Before Its IPO
By MOLLY WILLIAMS
Staff Reporter of THE WALL STREET JOURNAL
SANTA CLARA, Calif. -- A relatively obscure decision by
International Business Machines Corp. this week couldn't have
come at a worse time for one of Silicon Valley's
most-talked-about companies, Transmeta Corp. Just days
before Transmeta is expected to float its long-awaited initial
public offering, IBM said it is canceling plans to use Transmeta's
Intel-compatible chips in a notebook computer IBM planned to
start selling later this year.
The setback becomes the latest cloud
hanging over Transmeta, which has
been closely watched as much for its
well-known employees -- people such as
Linux-creator Linus Torvalds -- as for its low-power-consumption
chips. Already, Transmeta faces an IPO market that is decidedly
more skeptical of start-ups than it was in January, when
Transmeta unveiled its chips with great fanfare. And Transmeta's
products, which were developed over almost five years of heavily
guarded secrecy, are getting lukewarm reviews that, together with
the IBM decision, raise a big question about whether Transmeta
can prove itself during this crucial Christmas-buying season and
beyond.
"This will certainly take some of the wind out of investors'
enthusiasm for the stock," says Kevin Krewell, senior analyst at
chip researcher MicroDesign Resources.
Transmeta is betting that demand for its chips will come from
makers of very small, very lightweight laptops with more than
twice the battery life of competing machines. Transmeta already
has several customers making laptops using its chip, a processor
named Crusoe, which is smaller than comparable products from
Intel Corp. and which its maker claims uses less power than Intel's
chips.
Sony Corp. is selling a computer using the Crusoe, and Fujitsu
Ltd., NEC Corp. and Hitachi Corp. have announced products
featuring the chips. Internet-access devices using the chips are
set to start appearing later this year, led by one co-developed by
Gateway Inc. and America Online Inc.
Transmeta is betting that the buzz surrounding its innovative
chips will help it raise nearly $200 million in an IPO that lead
underwriter Morgan Stanley Dean Witter & Co. says is expected
on Monday. Transmeta certainly appears to need the cash
infusion that an IPO might offer. Some analysts estimate the
company is burning $1 million a week to keep its operations
going. Its cash on the balance sheet fell to $64.1 million at the end
of September, down from $112.3 million at June 30. Transmeta's
revenue rose to $3.82 million in the first nine months of the year,
up from $76,000 in the year-earlier period. Its loss for the nine
months widened to $71.4 million from $27.9 million a year earlier.
Some industry watchers expect strong demand for the
Transmeta IPO. In a market where many IPOs -- especially
Internet-related companies -- have been canceled or have run into
lackluster demand, they expect investors' interest to be piqued by
a company with competitive products, customers and steady
revenue. "It's a breath of fresh air in an otherwise smog-laden
environment," says David Menlow of IPOFinancial.com, which
tracks new issues.
Will Transmeta's Crusoe Float to Safety?
IBM cancelled plans to use Transmeta's chip days before the company's expected
IPO
THE COMPANY
CEO: Dave Ditzel
Founded: 1995
Headquarters: Santa Clara, Calif.
Some customers: NEC, Fujitsu, Gateway, AOL, Hitachi
Main Product: Crusoe processor, a chip designed to help mobile computers
conserve battery power
TRANSMETA'S FINANCIALS
(in thousands except per share for nine months ended Sept. 30)
1999
2000
Sales
$76.0
$3,817.0
Net loss
-28.0
-71.5
Net loss per share
-1.05
-2.26
One investor says Transmeta offers a good investment in a
company targeting a new and growing market. "At least this isn't
just promise -- they have chips out there that work," says John
Spytek, portfolio manager at Banc One Investment Advisors, who
plans to buy the stock.
But the loss of IBM's support at this crucial point is a blow. People
familiar with IBM's decision say the computer maker canceled its
Crusoe-based machine because it wasn't able to get the
eight-to-10 hours of battery life that Transmeta promised. IBM,
one of the largest makers of notebooks, declined to give a
specific reason for the cancellation. But it says it is still evaluating
the Transmeta chip for other products, though it is also looking at
low-power offerings from Intel and Advanced Micro Devices Inc.
as well. IBM manufactures Transmeta's products under a
separate agreement.
IBM's move comes on top of criticism from other quarters that the
Transmeta chip's performance and battery life don't live up to
claims. IT Week, a trade magazine that ran a test of the Sony
machine, says the chip was a poor platform for business use
because it was about half as fast as a comparable Intel-based
system and its battery life was about equal to existing laptops.
"On general desktop performance, it does pretty abysmal," says
Mr. Krewell of MicroDesign. He says that, because the chip uses
software to perform Intel-compatible tasks, the chip can get faster
with repeated use -- each time it does a task, it remembers it,
and the next time, does it faster. Plus, Crusoe is quite adept at
things like video playback, which current mobile chips from rivals
don't do as fast.
Transmeta says some of the organizations that do
benchmarking tests have contacted it to try to understand the
technology and test the chip in a way that takes into account how
the software in the chip works. Transmeta has designed its chips
so that some of the task of making them compatible with Intel's is
done by software "emulation." Transmeta also says its systems
perform poorly in the tests because the tests do one task only
once, and Crusoe is fastest when keystrokes, tasks or
applications are repeated.
Long-term, it will be crucial for Transmeta to show it can not only
make its first chips in high volume but that it has plans for more
products, analysts say. "Will they be able to execute? That
remains to be seen," says analyst Rick Whittington of
BancAmerica Securities.
Transmeta's long-term game plan will be a key to helping it break
into the corporate market, which is the biggest buyer of laptop
machines. Companies are often loath to use new technology, and
some analysts say the integration of a totally new kind of chip was
likely a contributing factor in IBM's decision to cancel. "No one will
do a corporate laptop with this until they've seen it work," says
Joe Osha, a Merrill Lynch analyst.
Some Transmeta customers say they chose Transmeta's
products because they were the only chips that could do what was
wanted. Sony says it saw no other choices when it was looking for
a processor that could handle big computing tasks like video
editing and downloading digital music and still be small and offer
long battery life. "There was no other option for us," says Mark
Hanson, vice president for VAIO PC products at Sony
Electronics.
But analysts caution that Intel is accelerating products to take
business from the newcomer. In September, Intel outlined plans
for very-low-power products that would compete with Crusoe. Mr.
Krewell expects Intel to introduce a Pentium III at 500 MHz and
using less than one watt of power in the next three months. Rival
National Semiconductor Corp. started shipping its first
single-chip product for Internet appliances in September and says
its Geode products are cheaper than Transmeta's offerings. And
AMD is set to introduce new mobile chips next year.
"Transmeta hasn't shown a good roadmap, and it is by no
means a slam-dunk that they will have tremendous market share,"
says analyst Martin Reynolds of Dataquest Inc. "This is not a
market for sissies."
Write to Molly Williams at molly.williams@wsj.com |
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