Transmeta cashes in its chips

Transmeta Corp. will cease production of all but a few of its low-power processors, shifting its focus to building new businesses around engineering services and intellectual property licensing, the company announced.

A new leader will oversee Transmeta’s metamorphosis. Arthur Swift, previously vice-president of marketing for the Santa Clara, Calif. company, was named president and chief executive officer. Matthew Perry, the former chief executive, has left the company, Swift said. Perry’s departure was not explained, but Swift thanked him for his contributions to Transmeta.

As one of the few competitors to Intel Corp.’s dominance of the microprocessor industry, Transmeta has lost U.S.$ 650 million over the last five years trying to get its low-power notebook chips into the mass market. The company unveiled its unique software-based approach to instruction processing in the year 2000 amid the trappings of a classic dot-com-era launch but never managed to translate the high expectations for its chips into profits.

Transmeta has stopped production of its original Crusoe processor as well as the 130-nanometer version of the second-generation Efficeon processor, Swift said. The company will continue to fulfill orders for 90-nanometer Efficeon processors through its manufacturing partner, Fujitsu Ltd., but those chips will be sold under new terms and conditions and in some cases will have significantly higher prices, he said.

Sony Corp. and Sony Computer Entertainment Inc. announced Thursday that about 100 Transmeta engineers will work with the companies on integrating Transmeta’s LongRun2 power-saving technology into future products. Sony will pay “market rates” for the services of those engineers, who will help Sony produce derivatives of its Cell processor, Swift said. Cell is a multicore processor designed for Sony’s upcoming PlayStation 3 gaming console, and development partners IBM Corp. and Toshiba Corp. are also expected to seek out other applications for the chip.

Transmeta will also continue to seek license partners for its intellectual property, Swift said. It has already signed licensing deals with Sony, Fujitsu, and NEC Electronics Corp. for LongRun2, which helps chip designers control power leakage in advanced processors.

“Our goal is to preserve and monetize our intellectual property, using products, services, and licensing as the delivery vehicle for that intellectual property,” Swift said.

As a result of this new business model, Transmeta was forced to lay off 67 employees, Swift said. This reduced its total headcount to 208 employees worldwide as of Thursday, he said. Most of the layoffs were felt by the sales, marketing, and manufacturing departments.

Several questions remain, including whether Transmeta will continue to enhance the Efficeon processor and whether the company’s software-based instruction processing design is up for license, said Kevin Krewell, editor-in-chief of The Microprocessor Report. But the outcome could have been much worse for Transmeta’s employees, as Sony’s participation will keep dozens of engineers out of the flat Silicon Valley job market, he said.

The layoffs and the services deal with Sony will help Transmeta get closer to profitability, but that goal is still out of reach in the foreseeable future. Transmeta’s goal is to reduce its negative cash flow to $5 million per quarter within the next one to two quarters, said Mark Kent, Transmeta’s chief financial officer. In the first quarter of 2005, which ended Thursday, Transmeta expects to record a negative cash flow of $16 million, Kent said.

The release of Transmeta’s fourth-quarter 2004 and full-year results was delayed until earlier this week following the discovery of material weaknesses in Transmeta’s internal financial controls, the company said Tuesday.

The company blamed those weaknesses on an unskilled and understaffed accounting department, and said the weaknesses affected Transmeta’s ability to correctly track fixed assets and properly determine inventory costs, among other things.

For the full year 2004, the company recorded $29.4 million in revenue and lost $106.8 million.

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