Transmeta shares jump in IPO, while vendors evaluate chip

Shares of microprocessor design house Transmeta Corp. soared in its highly anticipated 13 million-share initial public offering (IPO) on the Nasdaq exchange today. But questions about the performance of its low-power Crusoe chip -- and hesitation on the part of some big computer makers to use the chip -- may rain on the chip maker's parade.

Shares this afternoon had more than doubled to nearly $48 from the asking price of $21.

San Francisco-based Transmeta bumped up its asking price from $11 to $13, and then to the $16 to $18 range last week. The price rose again Tuesday, to $21, reflecting investors' eagerness for a high-tech IPO to revitalize the technology market. Transmeta could gain about $273 million at the current prices.

Transmeta's Crusoe microprocessors are designed for performance at low power, prolonging battery life in mobile computers. The chips are x86 processor-compatible, allowing them to accept applications designed for Intel Corp. processors. While comparable x86 processors might use six to 10 watts to run a particular application, according to the company, the Crusoe chip may use less than one watt.

Sony Corp. uses the Crusoe chip in new Vaio laptop computers, as do Fujitsu Ltd., Hitachi Ltd. and NEC Corp. in their products. Gateway Inc. and America Online Inc. are also co-developing an Internet appliance that uses Crusoe.

Questions remain about the actual performance of the Crusoe chip, however, and Intel's Pentium III SpeedStep processor -- running at somewhere near the 600MHz mark and consuming only one watt of power -- has begun competing in the same low-power chip market. Benchmark tests have shown that Crusoe improves battery life, but apparently at a cost in performance. Transmeta proponents counter, saying that the chip's software learns over time, allowing a gradual increase in performance.

But some computer makers may not wait for the argument to be settled.

After evaluating the Crusoe processor for Armada notebook PCs, Compaq hasn't yet settled on using the chip. "The official Compaq position is that we will continue to assess the Transmeta processor for use in future products. We're very careful not to say how a particular product will be used," said Arch Currid, a Compaq spokesman. "I'm not ruling in or out Transmeta in the future."

A week ago, IBM did drop the chip, backing out of tentative plans to use Transmeta's microprocessor chips in its ThinkPad 240 laptop personal computers (see story). IBM had been far enough along to demonstrate a Crusoe-powered ThinkPad at the PC Expo trade show in New York in June, and had said they would start shipping by the fourth quarter. An IBM spokesman also said the company would continue to evaluate the Crusoe for future use.

Compaq invested in Transmeta in April, along with several computer-industry heavy-hitting companies, including AOL, Gateway and Sony Corp.

IBM also has a financial interest in Transmeta; it produces Crusoe chips under contract in its facilities. Transmeta agreed to pay IBM $38 million over the next four years in their licensing deal, and fixed the conversion rate of a convertible promissory note issued to IBM at 1.2 million shares of its common stock.

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