Transfixed by Transmeta

By Richard McCaffery (TMF Gibson)
January 20, 2000

It's probably a tad soon for investors to start selling shares of Intel (Nasdaq: INTC) based on Transmeta's new Crusoe microprocessors.

In case you haven't heard, Transmeta is the privately held company whose most famous employee is Linus Torvalds, the father of the Linux operating system. After almost five years of hush-hush development, Transmeta yesterday unveiled a line of microprocessors that rival Intel's in terms of speed, yet consume less power. The company plans to target the fast-growing mobile computing market with its products.

Fast chips that require less power is the name of the game in the mobile computing market. The more power a chip needs, the more it drains the batteries. Plus, dispersing heat is more of a problem in smaller computing devices than it is in desktops.

Joseph Byrne, an analyst at market research firm Dataquest, said the Crusoe microprocessors are very compelling, especially the power management techniques, which he expects will allow vendors to build all sorts of new Internet devices.

Further, Crusoe's patented "code morphing" technology, which enables the microprocessors to replace some hardware with software, allows the chips to translate Intel's x86 code into language it understands. This makes the chips compatible with a wide range of software, Byrne said. Intel's StrongArm technology, acquired from Digital Equipment Corp. and used in next generation cellular phones and handheld computing devices, isn't based on x86 technology so it doesn't have the same compatibility.

As compelling as the technology is, there are two main business issues that have to be addressed, Byrne said. First, wireless connectivity is not exactly ubiquitous, and once the wireless infrastructure is in place, people have to be able to afford access.

Second, one of Crusoe's main targets is the emerging market for Web pads. These are communications devices that offer Internet access, but not other standard computer functions. Cyrix Corp, a subsidiary of Taiwan-based VIA Technologies, introduced a line of Web pads in late 1998. Problem is, the market for Web pads is still unproven. "The concept hasn't been commercialized," Byrne said. "Consumer acceptance needs to be proven."

And, of course, Transmeta will have to compete head-on with Intel in the ultra-light mobile PC market, an area in which Intel is spending boatloads of cash. On Tuesday, in fact, the company released a new line of Pentium III mobile processors that operate in two different modes: maximum performance and battery optimized.

This isn't to say Crusoe isn't a great product, or a breakthrough technology. It may be. The point is, developing a great technology is only half the battle. The market has to be ready for the technology, and the company offering it must be able to deliver. It should be fun watching Transmeta grow, and watching Intel respond. For a run down on Crusoe's technology, check out the Transmeta Web site. It offers a terrific overview.

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