News out of Banc of America's Technology Week
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Transmeta Calls the Tune
By Marcy Burstiner
Senior Writer
2/2/00 10:37 PM ET
SAN FRANCISCO -- Let the roadshows begin. David Ditzel, CEO of Transmeta, gave money managers their first peek at the superhot chip start-up at the Banc of America Securities Technology Week 2000 financial conference Wednesday. And if the reception he got is an indicator of market sentiment, the Transmeta IPO will be a doozy.
Transmeta is a developer of chips geared to fast notebook computers with extended-life batteries. One of the chips, the Crusoe, a software-based microprocessor that supposedly needs less power, was unveiled last Jan. 19 in the biggest press event to hit Silicon Valley since Steve Jobs unveiled Apple's (AAPL:Nasdaq - news) blueberry iMac.
Private companies are generally banished to a tiny presentation room at this conference, but Banc of America turned the charismatic Ditzel loose in one of the biggest venues. Even so, there weren't enough seats to go around. And after his 20-minute talk, a crowd of about a dozen fund managers, plus assorted press members, followed him into the hallway and hung onto his every word for another half-hour.
Transmeta CFO Dan Steimle acknowledges that a public offering is planned, although no schedule has been set. "We've got north of $60 million in the bank, so we don't have an immediate need to jump on it," Steimle said. "But definitely the plan is to do it."
Amid the swarm of fund managers, enthusiasm for the company was high.
Longtime technology investor Jon Gruber, a portfolio manager at Gruber & McBaine in San Francisco, says that if Transmeta shares were available on the public market today, he'd probably have his buy order in. "It looks good," he said.
Kurt Lanzavecchia, a semiconductor analyst at Bowman Capital Management, feels Transmeta's promise of low power and high performance is appealing. He went into the Transmeta presentation skeptical. "It sounded better than I expected," he said.
With chip stocks currently on fire, Ditzel couldn't have picked a better time to talk to the Street. The Philadelphia Stock Exchange Semiconductor Index hit an all-time high Wednesday of 834.42, and recent chip IPOs are soaring. Quantum Effect Devices (QEDI:Nasdaq - news), a designer of digital signal processors for communications products, jumped 38% to 77 3/4 on its second day public, a 335% increase over its offering price of 16. And Globespan (GSPN:Nasdaq - news), a developer of chips for digital subscriber lines that went public June 23 at 16 1/2, jumped 38% to 168 1/8 Wednesday after the company reported a 3-for-1 split and fourth-quarter earnings of 4 cents per share vs. a break-even estimate.
Transmeta didn't wow everyone. Kevin Landis, whose First Hand Technology Innovators Fund boasts a one-year return of 196% because of early plays in the communications-chip market, shook his head as he watched Ditzel give a television interview. There is a reason, he says, that aside from Transmeta, there are only three microprocessor companies left in the world, even though dozens have risen and fallen over the past 20 years. Making microprocessors, he said, is really, really difficult.
Who, Landis asks, doesn't want a high-speed laptop that can be powered all day without recharging the battery? But manufacturing a chip that's fast and consumes little power, at a low enough price to satisfy very demanding consumers and computer manufacturers, is another story altogether. And that, he believes, is something Transmeta won't be able to do. "Maybe I'm just jaded," Landis said.
Banc of America sandwiched Transmeta's presentation between those of Intel (INTC:Nasdaq - news) and Integrated Device Technology (IDT:NYSE - news). Intel, the great white shark of microprocessor producers, is the No. 1 challenge for Transmeta, and IDT is a good example of a company that's failed in its attempt to take Intel on with a low-consumption, high-performance chip.
History has shown that Intel eats companies like Transmeta for an afternoon snack. At the conference, Intel CFO Andy Bryant wowed Firsthand Funds analyst Ken Pearlman not with new products or higher chip speeds, but with charts that show how Intel intends to cut manufacturing costs over the next year to increase profits.
Meanwhile, IDT CFO Alan Krock emphasized how profits had returned to his company ever since it dumped its money-losing microprocessor business to Taiwanese chipset maker Via Technologies last summer. The "P" word didn't cross the lips of Transmeta CEO Ditzel.
Though it produces chips, four-year-old Transmeta has yet to sell any and doesn't have any revenue or profit.
Competitive challenges don't daunt the cheerful Ditzel. Forget the start-ups that have come and gone, he says. As far as he's concerned, there hasn't been a chip as revolutionary in design as his Crusoe since the reduced instruction set, or RISC, chip was introduced 20 years ago. And, so far, no one is asking about profits. "I don't get a lot of questions" from fund managers, Ditzel said. "Eighty percent of the people just say congratulations. They say, 'This is so cool.' "
In the past, chip companies that boast of "revolutionary" designs have found their shares snapped up when they go public. Take Rambus (RMBS:Nasdaq - news), the designer of revolutionary memory chips. It was the hottest IPO of 1997 but has since suffered production and other problems. Two years passed before many analysts and money managers realized that a nifty design might not lead to industry acceptance. At a closing price Wednesday of 77 3/8, Rambus now trades below the level it traded at shortly after its IPO.
As for Transmeta? The market will likely give it several years to prove that a processor revolution can lead to profit generation.
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