Chip newcomer Transmeta files for IPO

The Santa Clara, Calif.-based chip company filed a registration statement with the Securities and Exchange Commission to sell an undisclosed number of shares to the public. No date was set for the IPO. The company will trade under the symbol "TMTA."

The IPO and all the buildup to the offering will be intensely scrutinized by the semiconductor industry and Wall Street. The company's Crusoe chips are compatible with both the Linux operating system and Windows but use less power than equivalent chips from Intel. As a result, battery charges last longer.

So far, IBM, NEC, Sony and Gateway have revealed plans for Crusoe notebooks or Internet devices, while Compaq Computer is seriously considering using them.

But while Transmeta's technology has drawn support from computer manufacturers and general applause from analysts, many questions remain about the company. Hyper-secretive Transmeta has not released its chips to the public yet or even revealed a complete set of performance benchmarks. As a result, most analysts admit that they have not been able to evaluate the overall performance of the Crusoe family.

Price competition is another factor facing Transmeta. Intel rakes in more than $7 billion in revenue a quarter. Except for Advanced Micro Devices, the other companies that have tried to invade this market have foundered.

So far, the company has not turned a profit, but it has released chips to computer makers and seen revenues from product sales rise.

Then again, Transmeta comes to the market well connected. Sony, Gateway, Toshiba, Compaq and a number of Taiwanese contract manufacturers own equity stakes in the company, while IBM manufactures the chips on behalf of Transmeta. All of these companies, therefore, have a financial interest in seeing the company succeed.

Other investors include Institutional Venture Partners, a Silicon Valley venture capital firm that owns 7.3 million shares, and Paul Allen's Vulcan Ventures, which owns nearly 4 million shares. Transmeta CEO Dave Ditzel owns roughly 2.2 million shares.

One of the more interesting aspects of the filing is a revelation that Transmeta licensed its chip technology to IBM and Toshiba in 1997, which would have allowed the two giants to manufacture their own processors based on Transmeta's technology. Licensing fees from these two companies constituted the bulk of the company's revenue through 1999, the document stated.

Transmeta, however, later bought the rights back, paying IBM $33 million, with Toshiba receiving 600,000 shares.

"Under these agreements, we received license fees, access to technology, engineering and test services, mask sets and wafer and other production services, and granted IBM and Toshiba rights to manufacture and market x86 compatible products incorporating the licensed technology," the document said.

Cyrix tried to take on Intel earlier in the microprocessor market. The company, however, licensed its technology to IBM as part of a manufacturing deal. The terms partly helped undo Cyrix, analysts and Cyrix sources have said, as the company found itself battling its manufacturer for the same customer.

Ditzel has maintained this year that no other company has the right to market Crusoe processors.

Although Crusoe will sell chips to both the notebook and device markets, its primary target audience lies with notebooks.

"Our success depends upon our ability to sell our Crusoe microprocessors in volume to makers of notebook computers. Due to our software-based approach to microprocessor design, we have been required, and expect to continue to be required, to devote substantial resources to educate prospective customers in the notebook computer market about the benefits of our Crusoe products and to assist potential customers with their designs," the document stated.

Morgan Stanley Dean Witter, Deutsche Banc Alex Brown, Banc of America Securities and Salomon Smith Barney will serve as underwriters of the deal.