Transmeta to stop manufacturing processors

Santa Clara (CA) - Transmeta today announced that it will change its business model by March 31 of this year. Strategic changes include abandoning the production of its processors and shifting its focus to licensing its technology to other companies. Transmeta said it can answer "immediate and near term demand" for its current products.

Following a statement early this month, Transmeta today confirmed that it will radically change its business model to create a profitable business from its technology.

According to CEO Matthew Perry, Transmeta intends to halt production of its current 130nm Crusoe and Efficeon processors. "Immediate and near term demand" for these products would be answered from existing inventory, he said. Additionally, production problems with 90nm Efficeon processors were resolved and yields had improved, which enabled the firm to "support customer needs", Perry said.

The company is looking into alternative ways to offer its current products for a longer term. "We have received consistently strong, positive feedback in support of Transmeta’s technology, and customers clearly desire the continued availability of our products and technology, either directly or through some form of strategic collaboration," Perry said. However the company is not really interested in manufacturing processors : "We are in discussions with a partner to ensure supply of these products," he said.

Instead of manufacturing the silicon, the company intends to shift to a license-based business model. Transmeta currently has three firms that license its LongRun 2 power management technology. Licenses however are not limited to LongRun : According to Perry, the company intends to offer its complete microprocessor technology as well as "development capabilities".

The firm currently has $53 million in available cash, which means that the firm would run out of funds within six months, if it does not cut its operating cost. As a result of the modified business model, Transmeta already announced that it may cut its workforce as early as in March of this year.

While Transmeta was able to create buzz with its technology and especially the presence of Linus Torvalds as one of its most visible employees, the company had tough time finding its niche in a mobile processor market dominated largely by Intel. With several strategy changes over the past years, the manufacturer tried to poke holes in existing segments and quickly jump on new opportunities such as the Tablet PC - only to find itself surrounded by Intel’s marketing force and omnipresent product line.

Some analysts said that a focus on a licensing business could make sense, if Transmeta owns substantial intellectual property. But the move also is considered as surrender in a painful five-year battle with Intelover power saving processor technologies.

"You certainly could say that Transmeta is giving up," said Martin Reynolds from market research firm Gartner. "I consider Transmeta’s announcement as surrender in front of Intel and especially itself," added a former high-ranking engineer of Transmeta.

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