Transmeta Shifts from Processors to IP Licensing

Substantial layoffs and a CEO switch accompany the restructuring as the maker of energy-efficient chips turns to its LongRun2 technology to recoup losses.

Transmeta is ending production of most of its processors, launching an engineer services business and laying off 67 people as part of an expected restructuring of its business model.

Transmeta Corp. officials also announced Thursday that Matthew Perry is leaving the company after three years as president and CEO, to be replaced by Arthur Swift, formerly senior vice president of product marketing.

The announcements confirm what officials with the Santa Clara, Calif., company were saying last year—that they no longer believed that Transmeta could reach profitability relying on its processor business, and that its future depends on leveraging its intellectual property.

Key to that approach is its LongRun2 technology, which enables dynamic control of frequency, voltage and transistor leakage.

"I dont see this as a new chapter [for Transmeta]," Swift said during a conference call with analysts and reporters. "Todays announcements represent the start of a whole new book."

Transmeta came out with its first energy-efficient Crusoe chip in 2001, but has found little traction in the increasingly competitive mobile-computing space, particularly as larger rivals Intel Corp. and Advanced Micro Devices Inc. began targeting it.

Transmeta hoped that Crusoes successor, Efficeon, would launch it into larger laptops, but beyond some overseas success in Asia, Transmeta couldnt make much of a mark in the United States.

However, officials saw potential in licensing LongRun2, particular as the industry starts moving toward 90-nanometer and 65-nanometer chip-manufacturing processes, which potentially increases the leakage problem in processors.

/zimages/4/28571.gifClick here to read about Transmetas LongRun2 licensing deal with Sony.

Transmetas reorganization is focused on trying to stem the losses the company has suffered since its inception. In its fourth-quarter earnings report released Tuesday, Transmeta officials said it lost $28.1 million in the fourth quarter and $106.8 million for the year.

Revenues for the quarter were $11.2 million and $29.4 million for the year. The companys aim is to reduce quarterly losses to $5 million within the next few quarters, and officials said there is enough cash on hand to sustain the companys business plan through the end of the year.

Licensing still represents a smaller portion of Transmetas revenues than products. Of the $29.5 million, $18.8 million came from products, with $10.7 million generated through licensing.

As part of its reorganization, Transmeta is ending production of Crusoe and 130-nanometer Efficeon processors, and will continue manufacturing 90-nanometer Efficeons for certain customers that can promise high volumes, Swift said.

/zimages/4/28571.gifFor an early evaluation of Transmetas Efficeon, click here.

Mark Kent, Transmetas chief financial officer, said that as part of those deals, the company has changed the payment conditions, either by increasing prices or asking for up-front payment. This will drive off some customers, but others already have signed on to the new terms, he said.

The company also will continue efforts to license its intellectual property, in particular LongRun2. Already NEC Electronics Corp., Fujitsu Ltd. and Sony Corp. have licensed LongRun2 technology, and Swift said the company currently is in talks with another potential partner regarding a possible licensing deal.

Swift said he expects demand for the technology to grow as the industry moves to the smaller manufacturing processes. More than 30 fabrication facilities around the world are dedicated to 90-nanometer production, and less than 15 percent of all wafer capacity is targeted to 90-nanometer.

"The data bodes well" for Transmeta, he said.

Transmeta also is creating an engineer-services business. Sony has signed on to pay for 100 Transmeta engineers to help Sony implement LongRun2 in its products and to collaborate in other areas.

The 100 engineers represent almost half of the remaining 208 Transmeta employees after the 67 layoffs.

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