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Transmeta&#039&#039s IPO underwriters cheer, investors don&#039&#039t bite

Transmeta's IPO underwriters started cheering for the "next Intel" Monday, but investors didn't bite.

Transmeta, which markets the Crusoe chip, went public Nov. 6 at $21 a share. After a strong first day performance shares have been headed south on news that major partners weren't using Crusoe or delaying rollouts. Shares opened higher, but quickly fell 10 percent to 22.75 in early trading.

Morgan Stanley Dean Witter, Deutsche Banc Alex. Brown and SG Cowen all started coverage with bullish ratings. It isn't too surprising. Typically, a company gets bullish coverage from its IPO underwriters following its 25-day "quiet period." Salomon Smith Barney and Banc of America Securities, two more Transmeta IPO underwriters, didn't start coverage yet.

Morgan Stanley gave Transmeta an "outperform" rating, DB Alex Brown chimed in with a "strong buy" rating as did SG Cowen. Pacific Growth Equities, which didn't underwrite Transmeta's IPO, gave the stock a "buy" rating and a $50 price target.

The research reports were notable for one glaring omission -- none of them mentioned Transmeta's recent problems widely reported in the press.

On the day before Transmeta's IPO, Compaq (NYSE: CPQ), an investor in the company, announced it wouldn't be using Crusoe. IBM (NYSE: IBM) also opted for Intel (Nasdaq: INTC) chips over Transmeta. Last week, NEC (Nasdaq: NIPNY) said it was considering a recall of 300 notebook computers because of defective Transmeta chips.

All of those issues were glossed over by the analysts. SG Cowen analyst Drew Peck said in a research report that Transmeta is the "bridge to the future."

"We view Transmeta not as a processor company, but as an inflection point in the industry and as a bridge to the future of computing," said Peck, who also touted investors such as Compaq, Gateway, America Online and others, who validate Transmeta's technology.

Peck also said he expects Transmeta to report $350 million in revenue in 2002 and turn an operating profit at the end of 2001.

DB Alex Brown analyst Erika Klauer had more of the same. She predicted Transmeta sales to have sales of $160 million in 2001 and $340 million in 2002. "These estimates could prove extremely conservative given the revolutionary impact we expect the company to have on the market place," she said.

Perhaps the most glowing report came from analyst Brian Alger at Pacific Growth Equities. He said Transmeta is the "next Intel."

"While we have seen the numerous press clippings documenting a battle between David (Transmeta) and Goliath (Intel), we believe there is much more to Transmeta than yet another competitor to take on Intel," he said in a report. "Transmeta has been positioned as the first company in a great while to have the potential to be the next Intel."


• NEC recalls Transmeta notebooks
• AOL, Gateway rev up Internet appliance
• Compaq strands Transmeta>