Transmeta running test chips in possible production expansion

Processor start-up Transmeta is producing experimental samples of its Crusoe processor at Taiwan Semiconductor Manufacturing and other chip foundries in what could be the first stages of a larger manufacturing strategy for the company.

Taiwan Semiconductor Manufacturing (TSMC)

Gartner analyst Mark Margevicius says Transmeta is attempting to change traditional thinking about chip performance, compatibility and sellers, through Crusoe. see commentary

has produced proof-of-concept versions of Transmeta's Crusoe chip, a low-powered chip designed for notebooks and Internet appliances, Transmeta representatives confirmed. Experimental versions of Crusoe have also been produced at United Microelectronics (UMC), TSMC's main rival in the contract chip manufacturing business.

Whether Transmeta will work with these companies for commercial production will be an issue for 2001.

Stronger bonds between Transmeta and the two foundry giants could well be a pivotal factor in the company's growth because of the economic realities of the chip business, according to analysts and sources in the chip industry.

Currently, IBM makes Transmeta's chips. This arrangement gives Transmeta access to cutting-edge technology and immunizes the company from legal action from Intel because of IBM's extensive cross-license with the chip giant. However, IBM charges more than the Taiwanese foundries, leading to more expensive chips.

"Transmeta wanted to work with IBM to make sure there were no questions about legal issues with Intel," said Linley Gwennap, principal analyst at The Linley Group. "Over time, I think they will look to other foundries."

While there are a number of factors that would seem to encourage a TSMC-Transmeta alliance, one of the crucial ones is real estate. When they arrive later this year, Transmeta's Crusoe processors will compete against processors from Intel, Advanced Micro Devices and National Semiconductor to be picked by major computer manufacturers as the brain inside Web pads, ultra-thin notebooks and other consumer electronics devices.

Intel, AMD and National Semi, however, own their own factories, or fabs. Transmeta doesn't, which means its cost per chip will be higher. In the end, this leaves the company with two choices: try to convince customers that its products are worth a premium, or accept lower margins.

"It is tougher for a fabless company to compete where the other players have fabs. Cyrix suffered because of it, and eventually Transmeta will suffer from that if they don't initially," said Nathan Brookwood, an analyst with Insight 64. "Don't forget--Transmeta not only has to make money for itself; they also have to make money for IBM."

What makes TSMC or UMC more attractive is that they are cheaper, nearly everyone said. Even IBM agreed. "We certainly look for a premium on our state-of-the-art technology," an IBM spokesman said.

Despite the higher costs, Transmeta is also getting its money's worth with IBM. The company remains one of the leading semiconductor manufacturers in the world, and some of its cutting-edge technologies have gone into Crusoe.

"They do special foundry services that you can't get anywhere else," said Lucas Ward, an analyst with Chase Hambrecht & Quist.

Transmeta's chips, for instance, will be made with copper, rather than aluminum, wires. IBM was the first manufacturer to offer copper. "Their design is based on our copper technology," the IBM spokesman said.

Big Blue also provides legal cover from Intel. Because of extensive cross-license agreements, only IBM and ST Microelectronics can manufacture Intel-clone chips for other designers and provide these designers complete legal immunity, said sources close to Intel. National Semi used to be able to provide this service but no longer can.

Neither TSMC nor UMC have cross-licenses with Intel that can provide this sort of protection. Via Technologies, for instance, uses TSMC to manufacture its Intel-compatible chipsets, and Intel sued Via. Although some sources have indicated that Intel would have a difficult time suing Transmeta, others have pointed out that there are enough gray issues that would allow Intel to entertain a suit.

Neither Transmeta nor TSMC would be specific on any future arrangements. Transmeta representatives said that TSMC, among other companies including UMC, has produced samples of Crusoe processors. However, these companies are not "sampling," or pre-mass-production manufacturing, Crusoe just yet. The company will, nonetheless, take a hard look at the subject in 2001.

TSMC representatives stated in the Taipei Times earlier this year that they have made samples of Crusoe. The company often produces proof-of-concept chips for prospective clients, executives have said. The company, however, declined to comment for this article. UMC could not be reached for comment at press time.

In the end, Transmeta may bifurcate its manufacturing. The more expensive Crusoe 5000 family for notebooks may stay at IBM, while the less expensive Crusoe 3000 for devices may go to Taiwan, Gwennap said.

"They can afford to pay a little more to IBM (for the notebook chips), but I wouldn't be surprised if they sent some of their other work to another foundry," he said. "IBM is in a unique position."