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Transmeta shares plunge as lockup expires

The chipmaker's value falls when more than 113 million shares flood the market as the company's initial public offering "lockup" period expires.

Transmeta plummeted Monday as more than 113 million shares flooded the market to be sold as the chipmaker's initial public offering "lockup" period expired.

Shares of Transmeta closed down $3.40, or 23 percent, to $11.17 on a volume of 32.8 million shares. At the beginning of last week, the shares were trading around $17.

A "lockup" arises from a Securities and Exchange Commission rule that prevents insiders from selling shares for 180 days following an IPO. Transmeta went public Dec. 4. Insiders such as venture capitalists, company executives, employees and other early investors often own shares of a pre-IPO company at low prices--pennies in some cases. Once a lockup period expires, these early investors are free to sell.

The expiration date for the Transmeta sales was May 5, opening up the shares for sale Monday. The company currently has more than 129.7 million shares outstanding.

In the company's IPO filing, it noted the lockup expiration as a risk to new investors.

The lockup expiration overshadowed news that Transmeta inked a deal with Toshiba, the world's largest notebook maker, to supply chips for a new notebook to be sold in the Japanese market. Transmeta makes low-power processors that have begun to challenge those of industry leader Intel in the notebook market.

SG Cowen Securities analyst Drew Peck called the news "a big win" for Transmeta, and reiterated his "strong buy" rating on the stock.