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March 31, 2005

Transmeta slashes staff, CEO leaves

Transmeta is slashing a quarter of its workforce and turning more than half of those left into consultants for one of the few companies licensing its LongRun2 processor.

By CBR Staff Writer

The embattled chip manufacturer is cutting 67 employees, taking its headcount to 208, as part of a massive restructuring. The cuts mostly impact manufacturing and marketing.

Of those remaining, 130 will work with Sony Group to bring its Longrun2-based devices to market. Sony is one of three licensees of Transmeta’s LongRun2, along with NEC and Fujitsu.

Transmeta is effectively outsourcing the costs of maintaining these engineers to Sony, while also hoping to realize revenue on its licensing deal as the engineers work with Sony top bring products to market.

As part of the restructuring, chief executive and president Matthew Perry was replaced by former senior vice president for marketing Arthur Swift. No reason was given for Perry’s departure.

Swift, who also gets a seat on the board of directors, helped build the company’s licensing and services business, from $1.1m in 2003 to $10.7m in 2004.

Swift said the changes would help Transmeta capitalize on its intellectual property through licensing and services: This is the clearest path to leveraging IP and creative talents of employees, Swift said.

This is not just a new chapter in the life of Transmeta. This is a whole new book, he added.

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The changes follow poor annual results for the high-profile Transmeta. The company announced a $106.8m loss for the year to December 31 on revenue that grew 70% to $29.4m, revealing cash reserves of $53.7m, considered insufficient to fund its existing operations for the year.

Ahead of these results, Transmeta said in January it would stop mass production of its Crusoe processor and search for a chip production partner.

Despite the optimism behind yesterday’s changes, it remains questionable how far Transmeta can grow its business while supporting increasing numbers of customers. Licensing from Fujitsu and Sony has already been collected and Transmeta does not expect another LongRun2 deal this year because product evaluation cycles are lengthy – taking between three to six months, according to the company.

Meanwhile, the 130 services engineers will be almost exclusive tied up with Sony, making it difficult for Transmeta to use these staff with NEC, Fujitsu or other customers to help build devices using LongRun2. Only at this phase, can Transmeta begin to collect on the royalty portions of its various licensing deals.

Despite this, Transmeta is optimistic for its future addressable market: the company believes less than 15% of the overall fab market is dedicated to 90 nanometer technology, with Intel making up the vast majority.

We are very early in 90 nanometer and in the infancy of 65 nanometer technology, Swift said.

Transmeta said it would entertain royalty deals on a case-by-case basis, for per wafer, fab or device, with an expected fee of $10m per license and $10-15m per fab.

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