COMMENTARY -- At a recent chip trade show, Transmeta CEO David Ditzel was yapping about how he made Intel boost its mobile R&D budget. Meanwhile, he carried around plenty of models featuring Transmeta chips.
Transmeta's goal? To be a thorn in Intel's side as it conquers the world of mobile computing chips. For now, Transmeta (Nasdaq: TMTA) is just an annoyance. Nevertheless, Transmeta's moxie is getting its IPO lots of attention.
The company is planning to launch its 13-million-share initial public offering Tuesday priced at $21, well above a raised range of $16 to $18. The range was bumped up Friday from $11 to $13. Morgan Stanley is the lead underwriter. Transmeta's software-based Crusoe chip has garnered plenty of hype in the tech world. The fabless chip maker's pitch is that it can make semiconductors that run cool and conserve energy without sacrificing performance.
To be sure, Transmeta has a good story. But it's a story that isn't past the second chapter. Wall Street is clamoring to get Transmeta shares, and that guarantees a big opener. But the individual investor, who isn't going to get the IPO price, has to ask the tough questions before going ga-ga over Transmeta, which still has a lot to prove.
For the six months ended June 30, Transmeta reported sales of $358,000 and a net loss of $43.7 million. For the quarter ending Sept. 30, Transmeta said its revenue would be about $3.5 million. The company is lugging around an accumulated deficit of nearly $120 million.
Transmeta's product history can be described in one word -- brief. In January, Transmeta unveiled its Crusoe chip. By the end of the first half of 2000, the company made limited quantities of its chip. In September, Transmeta shipped in volume. IBM (NYSE: IBM) manufactures Transmeta's chips.
Now the fun really begins. All Transmeta has to do is convince notebook computer manufacturers to use its chip. Step aside Intel (Nasdaq: INTC) and Advanced Micro Devices (NYSE: AMD). In regulatory filings, Transmeta noted that "substantial resources" will be devoted to educating potential customers. If the company can't convince manufacturers to use Crusoe -- and potentially redesign products for Crusoe -- Transmeta is cooked. Although Transmeta has some big backers -- AOL and Compaq -- nothing is guaranteed.
Last week, IBM canceled a project aimed at building a ThinkPad mini-notebook using Transmeta's Crusoe processor.
Since tackling the notebook market is a tall order, Transmeta is also planning to be the chip behind a host of Internet appliances. The catch? The wireless and wireline technologies that would make appliances commonplace are still being developed.
Basically, if you buy into Transmeta's IPO, you're buying into a hunch. "There is little historical financial information that is useful in evaluating our business, prospects and future operating results," the company said in filings.
A few points to consider about Transmeta's story:
Despite Transmeta's undeveloped financial picture, many betting folks will bank on CEO Ditzel, who has one helluva resume. He co-developed the reduced instruction set computer, or RISC, microprocessor technology while employed at AT&T's Bell Laboratories and was director of SPARC Laboratories and chief technical officer of Sun Microsystems' Microelectronics division. Ditzel also brought a few brainiacs along for the ride. Through September, Transmeta had 109 employees with postgraduate degrees, including 41 Ph.D.s, out of 364 employees.