Tech Industry

Transmeta charts new course

Manufacturing turned out to be a bust for the chipmaker, so company is moving deeper into licensing.

Struggling chipmaker Transmeta is pretty much getting out of the hardware business.

The Santa Clara, Calif.-based company, which has lost more than half a billion dollars in the last five years, has dropped two chips from its product lineup--the Crusoe processor and the 130-nanometer Efficeon--and will manufacture select models of 90-nanometer Efficeon for select customers under modified terms, which may include higher prices.

"Business necessities have required us to make some dramatic changes."
--Art Swift
CEO, Transmeta

Instead, the company plans to rely on licensing its intellectual property, and engineering and consulting services. As part of the overhaul, Sony reiterated that it is licensing Transmeta's LongRun2 technology and will likely incorporate it into semiconductors. Both companies broadly indicated in statements that LongRun2 could be included in derivates of the Cell processor.

As part of the conversion, the company announced that Matt Perry has stepped down as CEO and was replaced by Art Swift, who was senior vice president of marketing. Swift is Transmeta's fourth CEO in less than four years.

The company will also lay off 67 employees, leaving just more than 200 workers.

"In order for Transmeta to be a healthy company, business necessities have required us to make some dramatic changes," Swift said on a conference call.

Dramatic might be an understatement. Since 1998, the company has posted accumulated losses of $614.1 million on revenues of $127.8 million. For the past five years, it has regularly lost more than $20 million a quarter.

Although Swift said the company will continue to make 90-nanometer Efficeon chips, the company indicated that the chips may not be long for this world. As part of the restructuring, Transmeta will renegotiate its contracts for the chip and may begin to charge higher prices, Swift said.

There are very few customers for the chip at the moment. Notebook makers, moreover, can get fairly inexpensive notebook chips from Intel and Advanced Micro Devices.

"We expect revenue to meet economic realities," Swift said of the chip business. The company has already taken the final orders for the chips being discontinued, he added.

Intellectual-property licensing can be lucrative. England's ARM has become a staple in the cell phone business through licensing chip designs. Other companies, such as Rambus, have won millions in settling intellectual-property cases. Still, it's no guarantee of success. A number of the so-called IP firms that emerged in the semiconductor business in the late '90s have faded away or never taken off.

So far, Transmeta has signed licensing deals with Sony, NEC and Fujitsu.

Transmeta specializes in energy-efficient processors for notebooks and consumer electronics. Despite racking up an unusually large number of deals in debut year in 2000, many of these deals began to fade out in 2001 when Transmeta hit manufacturing snags. The company never recovered, leading to declining revenues and increasing losses.