Home' Technology Review : May 2005 Contents TECHNOLOGY REVIEW
I Intel monopoly
that dealt Transmeta, one of the
highest- ying chip companies to
come out of Silicon Valley, its
mortal blow. The wound was self-
in icted. The startup let down its cus-
tomers, chip buyers for computer makers
who had stuck their necks out to get their
companies to use Transmeta s unproven
but promising low-power processors.
When the Santa Clara, CA, company
came out of stealth mode in January 2000,
it was swept up on a wave of hype. It had
the right technology to pioneer low-power
microprocessors, which, because they use
less battery power and throw o less heat
than other chips, allow laptops to be both
speedy and thin. If Transmeta had hit its
perfor mance and power targets, it could
have taken leadership away from Intel---
which had focused mainly on cranking up
the megahertz---in the fastest-growing
segment of the PC industry. Laptops are
now close to half the market.
David Ditzel, one of the designers of
Sun Microsystems rst Sparc chip, which
helped create the workstation/server mar-
ket, founded Transmeta in 1995 and
raised money from the likes of Paul Allen
and George Soros; the company s initial
public o ering in late 2000 brought in
$273 million. The game plan was clear.
Transmeta was supposed to break in with
laptop chips and then pioneer low-power
gadgets of a type that hadn t previously
existed, such as one-pound laptops and
handhelds that could run Windows. The
company could have become pro table
with just a fraction of the $27 billion PC
microprocessor market, selling chips to
the likes of Toshiba, IBM, and Hewlett-
Packard. But it made mistakes.
First, it took a long time to design its
chips. It was ve years before Transmeta
announced its rst product and almost an-
other year before its rst chip shipped.
Also, the company wasn t conservative
enough in its choice of manufacturer. It bet
that Taiwan Semiconductor Manufactur-
ing would be able to roll out an advanced
manufacturing process on schedule. But
Taiwan Semiconductor faltered, as do
many chip makers when implementing
new fabrication equipment and materials.
This caused a big delay in chip deliveries, a
consequent loss of face for customers, and
the erosion of Transmeta s lead over Intel.
"It s almost a Greek tragedy," says
Nathan Brookwood, an analyst at Insight
64 in Saratoga, CA. "All they needed was
the chorus in the back. They promised a
tremendous amount and didn t really de-
liver on those promises."
Problems with execution were magni-
ed by a high-maintenance design. Trans-
meta had taken the novel step of moving
some functions ordinarily performed in
hardware into software, which reduced
the size of its chip and lowered power con-
sumption; it expected to make up the dif-
ference with increased processing speed.
But the task of developing and constantly
updating the added software proved to be
a drain on company resources.
When Transmeta lost its lead in low-
power chips, it awoke a sleeping giant
in Intel, which launched a low-power
Pentium M chip in 2003 and took most of
the market with the Centrino, which ag-
gregated everything computer makers
needed to build wireless-network laptops.
Then the economy fell into a recession.
Transmeta s sales slipped from $35.6 mil-
lion in 2001 to $17.3 million in 2003. The
company tried again with its second-
generation chip, the E ceon, but it never
won back customer loyalty, and Intel s
momentum grew. The cutting-edge por-
tables where Transmeta dominated never
became a high-volume market.
Transmeta has been up for sale for at
least ve months. But with a market capi-
talization of around $200 million, it has no
takers at present. Advanced Micro De-
vices, the number-two PC microprocessor
maker behind Intel, could use Transme-
ta s technology but hasn t been willing to
pay the steep price. And while Intel could
have used Transmeta s technology ve
years ago, it doesn t need it now.
The company s last resort is to license
its LongRun2 technology, which saves
power by reducing the "leakage" of electri-
cal current across transistors that are sup-
posed to be turned o . NEC, Fujitsu, and
Sony have licensed LongRun2. But the
revenues that have resulted---a few million
dollars a quarter---won t solve Transmeta s
problems. The company has told its cus-
tomers that they can license its chip de-
signs, but that it will ll orders only for
existing chips. At press time, Transmeta
had only $53 million in cash and had been
burning through $25 million a quarter.
"This is the way Silicon Valley works,"
says Paul Sa o, research director for the
Institute for the Future in Palo Alto, CA.
"Companies make mistakes, and we learn
from failure, not successes. Innovation
doesn t always win." ■
Isn t Enough
THE CASE: Transmeta, which was to have been a
market-grabbing pioneer in low-power microprocessors,
is in tatters. Its failure serves as a cautionary tale to
companies long on innovation and short on execution.
Headquarters: Santa Clara, CA
Stock price, January 2, 2001: $20.69
Stock price, January 3, 2005: $1.58
COURTESY OF TRANSMETA
may have come
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