COMMENTARY -- No Big Blue? No Compaq? No problem.
Or at least that's what Transmeta (Nasdaq: TMTA) seem to be saying today.
The chip company's stock soared in its IPO debut, despite news that IBM (NYSE: IBM) and Compaq (NYSE: CPQ) backed off from Transmeta's notebook processors for now.
I've heard the CEO and co-founder of Transmeta (Nasdaq: TMTA) speak at a couple of events, and he seemed to be an affable fellow. But some folks are probably wondering if he ticked off someone. How else to explain the timing of these OEM announcements?
Losing Big Blue is the biggest blow. If a company that makes the chip won't even use it, why should anyone else?
Obviously the timing is the worst part of the whole brouhaha, given the IPO schedule.
The company can't defend itself, because the U.S. Securities and Exchange Commission requires companies to shut up in the weeks leading up to and immediately following an public offering of stock. News reports may speculate, but outside of Transmeta and its OEMs, no one truly knows how these "low-power" chips are benchmarking against products from Intel (Nasdaq: INTC) and Advanced Micro Devices (NYSE: AMD).
Back when Transmeta first filed its IPO, I criticized it for having a prospectus devoid of some critical information. Someone asked me if Transmeta would be hurt by a lack of field results for the chips. I replied that the company would likely have field results before it went public.
I was wrong (big surprise, right?), but it doesn't matter, judging by today's TMTA performance. Perhaps people believe Transmeta will overcome any obstacles. After all, the company still has its investor OEMs -- NEC, Sony and Fujitsu -- rolling out notebook computers.
But we still don't know what kind of earnings this company will generate, no way of forecasting future revenue growth. This stock isn't going up because of a firmly-grounded belief in Transmeta's future.
No, Wall Street was simply starved for a hot offering. Our resident IPO reporter, Tiffany Kary, points out that there hasn't been a first-day burst like this since storage network switch maker McData (Nasdaq: MCDT) went public Aug. 8. Even in this not-so-bullish market, three months is a long time to go without a big IPO pop.
So to some extent, Transmeta simply timed its IPO at the right moment. Credit Morgan Stanley Dean Witter for selling this ticket so well.
It helps that Transmeta operates in a market that commands widespread attention. People get excited about these processors because everyone on Wall Street owns a laptop. And Transmeta gets further buzz from its plans to make chips for devices such as Web pads.
Fine. I hope Transmeta is successful, though I have my doubts, given that Intel (Nasdaq: INTC) is pushing hard now to stem the tide, and Advanced Micro Devices (NYSE: AMD) has mobile, lower power versions of Athlon and Duron scheduled to debut in the first half of next year.
Few people are thinking about competitive threats at the moment. Traders wanted a killer IPO. Morgan Stanley fed them one. Everyone is happy for now.
But even casual observers of the stock market know this IPO is bound to lose some ground after such a blazing debut. And unless Transmeta starts showing some serious revenue coming in from its OEMs, there's nothing to drive the stock higher again.
So if you haven't bought TMTA by now, you might want to hold off. At least until there's a real reason to buy in.