Transmeta cashes in its chips, eyes services, licensing

Transmeta's future as a chip supplier is all but over as the company detailed plans to focus on services and licensing.

Transmeta 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.

Arthur Swift, previously vice-president of marketing for the company, will oversee Transmeta's metamorphosis in his new role as president and chief executive officer.

Former chief executive, Matthew Perry, had left the company, he said.

Swift did not explain Perry's departure but thanked him for his contributions to Transmeta.

As one of the few competitors to Intel's dominance of the microprocessor industry, Transmeta has lost $US650 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 2000 amid the trappings of a classic dot-com-era company launch but never managed to translate the high expectations for its chips into profits.

Transmeta had stopped production of its original Crusoe processor as well as the 130-nanometer (nm) version of the second-generation Efficeon processor, Swift said.

The company will continue to fulfill orders for 90nm Efficeon processors through its manufacturing partner, Fujitsu, but those chips would be sold under new terms and conditions and in some cases would have significantly higher prices, he said.

Sony and Sony Computer Entertainment have announced that about 100 Transmeta engineers will work with the companies on integrating Transmeta's LongRun2 power-saving technology into future products.

Sony would pay market rates for the services of those engineers, who would 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 and Toshiba, are also expected to seek out other applications for the chip.

Transmeta would also continue to seek license partners for its intellectual property, Swift said. It had already signed licensing deals with Sony, Fujitsu, and NEC Electronics for LongRun2, which helped 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 at April 1. Most of the layoffs were in the sales, marketing, and manufacturing departments.

Several questions remained, including whether Transmeta would continue to enhance the Efficeon processor and whether the company's software-based instruction processing design was up for license, editor-in-chief of The Microprocessor Report, Kevin Krewell, said.

But the outcome could have been much worse for Transmeta's employees, as Sony's participation would 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 was to reduce its negative cash flow to $US5 million per quarter within the next one to two quarters, Transmeta's chief financial officer, Mark Kent, said.

In the first quarter of 2005, Transmeta expected to record a negative cash flow of $US16 million, he said.

The release of Transmeta's fourth-quarter 2004 and full-year results was delayed until late last month following the discovery of material weaknesses in Transmeta's internal financial controls.

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 $US29.4 million in revenue and lost $US106.8 million.

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Tom Krazit

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