Transmeta revamps business model, increases focus on IP licensing

Santa Clara (CA) - After having struggled for nearly five years to convince notebook manufacturers of its power saving processors, Transmeta today said that it will "modify" its business model and focus on licensing its intellectual property (IP) to third party organizations.

Emerging from stealth mode in January of 2000, Transmeta was set to revolutionize the world of mobile processors. The Crusoe chip used far less power than Intel's and AMD's processors. But soon it turned out that the Crusoe and its successors never were able to reach the performance levels offered by the processors of its competitors. After re-adjusting its strategy several times over the past five years, the company today said that" company's management is completing a critical review of its current business model, including an evaluation of its customer requirements and the economics and competitive conditions in the market for x86-compatible microprocessors."

The announcement can be viewed as sign that the company is giving up its battle against Intel to convince notebook manufacturers. Although many believe that it was Transmeta who led Intel to develop its "SpeedStep" technology, which was unveiled one day before the first public demonstration of the Crusoe chip, the firms was able to only place its chip in the Asia-Pacific region as well as emerging handheld PCs such as the OQO, which are produced in small numbers. According to Martin Reynolds, analyst with Gartner, Transmeta sold about 30,000 to 40,000 processors in any given quarter. Sales of the processors were between 150,000 and 200,000 in 2004, which is almost negligible compared to almost 200 million PC processors shipped this year.

Reynolds believes that lack of speed was the single most important reason for the Crusoe family to miss its goal: "The processors never had the performance capability to stand against Intel," Reynolds said.

A shift from actively building processors to a greater focus on licensing technology is one of the most significant strategy changes in the firm's short history. In the past, the company already moved away from targeting notebooks and placed its bet on the Tablet PC which however adopted mainly Intel processors. Reynolds believes that licensing IP instead of manufacturing processors could make sense, if Transmeta owns "enough IP". Matthew R. Perry, president and CEO of Transmeta said that the company would "leverage" its "substantial IP portfolio and R&D capabilities" to reduce cash needs and to improve results for shareholders.

For the third quarter of 2004, the company reported $7.0 million and a loss of $28.6 million. Compared to the third quarter of 2003, the company was able to increase revenues from $2.7 million and increase its income from licensing from $323,000 to $3.7 million. Cash reserves and short term investments of Transmeta decreased sharply from almost $111 million to $65 million in the same time frame. The firm's stock traded on Tuesday for $1.46, after having topped $50 at the end of 2000.