Allen, who replaced founder David Ditzel in March, will be succeeded by chairman Murray Goldman. The company also named Hugh Barnes, a member of Transmeta's board, as its new president and chief operating officer--two positions that were vacant since Allen had assumed the CEO role.
The decision was made at an emergency board meeting Tuesday morning, a source said.
In a statement, Transmeta said the board made the latest personnel changes after reviewing the company's recent performance. The Santa Clara, Calif.-based company reports earnings Thursday.
"This was a very difficult decision made after considerable deliberation," Goldman said in the statement. "I remain extremely positive about Transmeta's technology, business model and the very strong team of over 400 employees."
A Transmeta representative declined to comment further on the company's finances.
Earlier this month, Transmeta warned of lower-than-expected sales for its third quarter. The company is also having trouble getting a new Crusoe chip out the door.
With speculation that it was developing a strong challenger to Intel's chips, Transmeta was the talk of Silicon Valley prior to unveiling plans for its Crusoe chip in January 2000.
The company, founded in 1995, had hoped to revolutionize the notebook market with energy-efficient chips that use special code-morphing software to execute the instructions written for Intel's processors. However, sales of the company's chips have lagged behind expectations, enjoying some success in Japan but failing to find a home in the mainstream U.S. notebook market.
Institutional investors bid up Transmeta's shares in last fall's initial public offering, which raised $273 million. The shares, which had been expected to sell in the range of $16 to $18, were priced at $21. Shares more than doubled on the first day of trading to close at $45.25.
However, the shares have plummeted since, dropping below $10 in June. The stock traded as low as $1.17 on Oct. 9 before recovering somewhat in the past week to rise above $2. On Tuesday, shares closed up 12 cents, or 5 percent, at $2.37.
Goldman, 64, has been Transmeta's chairman since November 1998, following his retirement from Motorola after a nearly 30-year career in various management positions, including executive vice president and assistant general manager of the semiconductor products sector.
Barnes, 55, also joined Transmeta's board in November 1998, after his retirement from Compaq Computer, where he served as vice president and chief technical officer.
Although he stepped down as Transmeta CEO in March, Ditzel has remained with the company as chief technology officer and vice chairman of its board.
News.com's Michael Kanellos contributed to this report.