How Long Can It Last?
By Alex Romanelli -- 4/29/2002
Electronic News
It was the darling of Wall Street and a David to Intel's Goliath, but Transmeta Corp. now is stuck in a desperate struggle to achieve profitability before the money runs out.
Given the current burn rate, funding will last a maximum of two more years. But with competition on the rise and trouble getting products to market on time—its flagship Crusoe TM5800 was six months late—money is only one of Transmeta's growing list of problems.
Crusoe’s initial promise came from use in products such as this Fujitsu LifeBook P Series.
For the last six months, the company reported a net loss of $80.6 million on net revenue of just $5.6 million. It also announced its third CEO in the past year.
Meanwhile, Intel Corp. has taken notice of Transmeta's ultra-low power microprocessors and is rolling out similar chips with its ultra-low power processor line. Banias is Intel's first chip designed specifically for notebooks.
"Intel has really changed its road map and come along like gangbusters in this low-power space," said Nathan Brookwood, an analyst at Insight 64 in Saratoga, Calif. "Today there may be some power-savings with the Transmeta approach over an Intel approach, but they are shades of gray as opposed to being black and white. Six months from now Intel will have Banias out, which promises to offer higher levels of performance and dramatically lower power consumption, and therefore may completely obliterate whatever opportunity Transmeta had."
Intel's Banias is expected in small-volume production before the end of the year. "It was designed from the ground up to be a Transmeta killer," said Rob Enderle, VP of desktop and mobile technology for Giga Information Group Inc., Cambridge, Mass.
Keeping Transmeta afloat is more than $200 million in cash, secured by an incredibly successful IPO. Brookwood said Transmeta's cash reserves are enough to last until it can roll out a successor to Crusoe.
"Clearly they have got to get their revenues back up," Enderle said. "What has hurt them is production problems. When you are the emerging vendor, missing a technology roll and doing so as dramatically as they did, that is very difficult to recover from. They have a much harder time now coming back to the market than they otherwise would have if they had gotten the product out on time.
Enderle added that while Transmeta was making good progress toward the end of last year, the company is now running into closed doors from some customers.
Brookwood cited the example of RLX Corp. as just one company that has switched from exclusively using the Crusoe to a mix of Crusoe and Intel's processors. Transmeta is treading water, he said. Curiously, Intel's competition could prove to be Transmeta's saving grace.
"Working for Transmeta is the fact that there really is not a strong small form factor processor on the market other than Intel's," Enderle said. "Hardware OEMs are relatively upset at Intel, so they want somebody like Transmeta in the space."
He noted that OEMs don't want to be dictated to by any company, particularly Intel. And when given the opportunity to use a second vendor to wake up Intel, they'll take that opportunity.
"If it was not for that, we would be writing Transmeta off now," he said. "Of course, Intel could win the OEMs back, in which case the need for Transmeta goes away."
Matthew Perry, Transmeta’s new president and CEO, isn’t taking his eye off Intel.
Matthew Perry, Transmeta's new president and CEO, isn't taking his eye off Intel. He said during a recent conference call that Intel is a "tough competitor."
In the same call, former CEO Murray Goldman outlined the company's plan to get back on track, which includes the tapeout and production of a new part next year. He also reaffirmed the company's commitment to have parts out on schedule and to boost the clock speed of its products. Goldman said the company plans on moderate growth in the near-term, followed by the potential for accelerated growth several quarters down the road.
A spokesman for the company pointed to Transmeta's design wins this year at Sony, Toshiba and Fujitsu, and OQO Corp.'s decision to use a 1GHz TM5800 in its ultrapersonal computer product. The company also expects second-quarter revenue to increase sequentially by 55 percent to 65 percent.
Whether that will be enough to stem the flow of money remains to be seen.
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