Transmeta replaces CEO amid major restructure

Big Sony deal boosts tech licensing play

Transmeta last night began its transformation from a chip maker to a processor technology developer, a move heralded by the replacment of president and CEO Matthew Perry, almost three years after his appointment to that role, and the loss of 67 jobs worldwide.

Hints that the company might shift from producing and selling processors to simply licensing key chip technologies first appeared at the beginning of the year, and were soon confirmed by Transmeta itself. Yesterday, company bosses said that is indeed how the firm will be directed, with its licensing programme being backed up by a design and engineering consultancy and outsourcing business.

The near-term suitability of the move was indicated earlier this week by the company's Q4 FY2004 results, which showed big gains in its licensing and services revenue, both sequentially and year-on-year. To highlight the longer term benefits of the company's strategic shift, Transmeta also announced yesterday Sony's decision to extend its LongRun 2 licence.

The Japanese consumer electronics giant licensed LongRun 2 in January. Now it will "accelerate and expand its adoption" of Transmeta's leakage-reducing power conservation system, and confirmed it will indeed use the technology in "derivatives" of its 'Cell' microprocessor and "other portable applications" covering "current and future generation semiconductor process technologies".

The two companies will also "engage [in] strategic technology collaboration in other engineering areas", they said, without delving into the details. Transmeta will dedicate around 100 engineers to the project.

The focus on licensing will come at the expense of Transmeta's chip business, which will now essentially be dismantled. Transmeta said it will offer its Crusoe and 130nm Efficeon products on an "end-of-life" basis - it will continue to sell them until stocks disappear or demand dwindles, whichever comes first. It said it will continue to make certain 90nm Efficeon chips, essentially to maintain supply contracts already in place. But it hinted it would be looking to change the terms of those deals, presumably to allow it to exit the chip business as soon as possible.

CEO swap

"We feel confident that our strategic direction and the decisions we have already made will have an immediate positive impact on our financial position," said incoming president and CEO, Art Swift, who replaces Perry with immediate effect.

Perry joined Transmeta in April 2002, to allow then CEO Murray Goldman to become chairman. Perry brought Swift into the company in March 2003 to run its marketing operation. It's not clear yet whether Perry jumped or was pushed. Certainly his voice was absent from the company's restructuring statements, not what you'd expect in the case of an amicable separation.

In addition to Perry's departure, 67 other jobs will go, leaving the company with 208 workers - half of them dedicated to the Sony deal. Transmeta said it will take a $6m hit to cover the cost of the restructure during the current quarter, Q1 FY2005, which ended yesterday.

Transmeta CFO Mark Kent said the company ended the quarter with $38m in cash and equivalents, down from $53.7m at the end of the previous quarter.

"For Q1 FY2005, we expect to report negative cash flow of $16m, including some restructuring-related costs," said Kent. "Our first objective will be to reduce our negative cash flow run rate to $5m per quarter or less within the next one or two quarters.

"We believe that our ongoing efforts on licensing and strategic collaborations, combined with careful expense management, provide us with sufficient liquidity to successfully execute on our growth strategies." ®

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