Transmeta upbeat about first quarter

Transmeta (Nasdaq: TMTA) topped fourth quarter estimates and raised targets for the first quarter.

After market close Thursday, the maker of low-power chips for mobile devices reported a fourth quarter net loss of $17.3 million, or 20 cents per share, excluding amortization. First Call's survey of two analysts produced a forecast of 17 cents per share, but that was because analysts overestimated the number of shares outstanding for the quarter, said Brian Alger, analyst with Pacific Growth Equities.

"The difference is entirely due to the share count," said Alger, who has a "buy" rating on Transmeta stock. His firm doesn't have underwriting ties to Transmeta.

The absolute figure of a $17.3 million loss was actually better than expected, Alger said.

"It was a solid quarter," Alger said. "They had a lower-than-expected loss and higher-than-expected revenue, and that's pretty much the equation for a good business."

Shares traded at 22.625 in afterhours activity on the Island electronic communications network, following Transmeta's conference call accompanying the fourth quarter report. Transmeta rose 0.5 to 23.0625 in Thursday's regular trading ahead of the release of quarterly results.

Including amortization charges, Transmeta lost $26.2 million, or 30 cents per share.

Fourth quarter revenue of $12.4 million was almost 13 percent higher than the $11 million predicted by First Call consensus. Gross margin was about 42 percent.

Transmeta said it sees first quarter revenue increasing at least 50 percent sequentially. "We feel the infrastructure is now in place to support strong top line growth in 2001," company President Mark Allen said, during a Thursday conference call with analysts.

Gross margin for the March quarter should rise to about 44 percent as manufacturing yields increase, the company said. Transmeta expects sales, general & administrative expenses, as well as research and development costs, to be flat compared to the fourth quarter.

"I'm going to have to move my revenue number higher for the the first quarter," Alger said.

For the full year, Transmeta lost $74.2 million, or $1.66 per share, excluding amortization. Including all charges, Transmeta lost $97.7 million, or $2.18 per share, on product revenue of $16.2 million.

Thursday's report marks Transmeta's first financial report since its initial public offering. Although the stock soared initially, it subsequently slid on disapointing news.

During the first quarter, the company announced a slew of customer wins, including NEC Corp. and Hitachi LTD and saw Sony Corp. ship the VAIO PictureBook, the first notebook computer to use Transmeta's Crusoe processor. But the PictureBook soon drew criticism for lackluster performance and average at best battery life. IBM also abandoned a much-touted project to graft a Crusoe chip into its ThinkPad 240 mininotebook.

The chipmaker celebrated Thanksgiving with the Comdex/Fall announcement of faster Crusoe chips, new versions of its Code-Morphing software and a new 256-bit processor cure, due in 2002.

Some PC makers apparently used a bad lot of Transmeta Crusoe chips to build notebooks. NEC Corp. recalled a small number of LaVie notebooks, about 284, in Japan and replaced their motherboards. Sony issued a warning to customers, though it did not recall any notebooks. Although it turned out to be a small event, Transmeta shares fell on the recall.

NEC's recall had no effect on Transmeta's financials, Allen said.

Ten products were shipping in volume with Crusoe processors at the end of December, Allen said. The company predicted that total would increase to at least 15 in the first quarter.

Although other chip and computer-related companies have felt the impact of a slowing economy, that shouldn't worry Transmeta investors, analysts and executives said. "Although the desktop market is slowing, the notebook market is established, solid and growing at a double digit rate," Allen said.

Because Transmeta is an early stage company, Alger said, the main concerns are the company's ability to perform on its business plan, rather than the effects of a possible recession

"Right now, I don't see Transmeta being affected by the macro picture," Alger said. "I'm looking at Transmeta for the next six to nine months almost in a vacuum. ... We're a long way from measuring Transmeta like Intel (Nasdaq: INTC) and Advanced Micro Devices (NYSE: AMD)."

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