Transmeta Microprocessor Chip Business for Sale

Transmeta, which once challenged Intel by producing a line of low-power processors for desktops and notebooks, is putting itself up for sale and is actively seeking a buyer for what remains of its intellectual property, according to a new filing with the U.S. Securities and Exchange Commission.

While once known for its energy-efficient Crusoe processors, Transmeta has moved away from chip design and now relies on revenues from its LongRun and LongRun 2 technologies, which allow for dynamic control of the frequency, voltage and transistor leakage within a microprocessor.

Transmeta wrote a letter to the SEC Sept. 24 to announce that the company is now for sale. On the same day, Transmeta announced a licensing agreement with Intel that will give the chip giant additional access to Transmeta patents and intellectual property.

In 2007, Transmeta settled a patent infringement lawsuit with Intel, which required Intel to make a one-time $150 million payment to Transmeta plus annual $20 million payments for the next five years. In the letter to the SEC this week, Transmeta wrote that Intel will now accelerate those annual payments into a one-time settlement of $91.5 million, which is due by the third quarter of 2008.

“This year, as a result of our successful licensing activities, we will collect at least $265 million of cash payments for our intellectual property and patents,” Transmeta CEO Les Crudele wrote. “We expect that our intellectual property portfolio and licensing business, combined with our solid balance sheet, will be attractive to potential bidders, and we look forward to conducting a timely process to maximize value for our stockholders.”

The SEC filing marks the end of what had been an innovative chip company that 10 years ago looked to challenge Intel and Advanced Micro Devices in the PC market.

Transmeta focused on low-power, x86-compatible processors that would enhance the battery life of notebooks. While Transmeta was ahead of its competition, its work spurred Intel to follow the same route when it created its laptop platforms and more energy-efficient chips. Now, Intel is moving ahead with a range of low-power processors, notably its Atom line for both PCs and mobile Internet devices, or MIDs.

In 2005, with revenues falling and the company gaining little traction and market share with its processors, Transmeta shifted to selling its intellectual property to other chip companies. The LongRun technologies seemed appropriate as the microprocessor industry shifted from 90-nanometer processor to 65- and eventually 45-nm chips, and companies needed to solve problems associated with power leakage from these smaller microprocessors.

In 2007, AMD invested $7.5 million in Transmeta and Nvidia began licensing some of its intellectual property earlier this year. At one time, Transmeta also had agreements with Microsoft and Sony to help develop processors for those two companies, but Transmeta’s last annual report showed that it had scrapped those programs because there was no revenue.

In the end, the revenues from Transmeta’s intellectual property were not enough to keep the company going and allow for additional research into new power-efficient technologies, said John Spooner, an analyst with Technology Business Research.

“The intellectual property they have is worth quite a bit,” said Spooner. “It appears that Transmeta has reached a crossroads where they feel it’s better to become part of another company than stand on their own. They may have reached the end of some of the projects that their engineers were working on and now it’s time to become part of another company in order to get the funding they need to proceed with their work. They are focused on delivering low-power technologies, but that is a very expensive proposition.”

The question now is which chip makers might look to buy Transmeta.

Right now, Intel is conducting a good deal of power-efficient research on its own and has already licensed the technology it needs. AMD has invested in the company, but its own troubled financial situation could mean that AMD will stay out of the acquisition game for now.

If Intel and AMD do not want to acquire Transmeta, another semiconductor company, such as Samsung or Toshiba, might buy the chip maker. For example, Toshiba could use Transmeta’s patents to improve the power efficiency of its Cell chip.