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Transmeta gets a big order
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May 30, 2000: 3:54 p.m. ET
Gateway, AOL choose upstart's chips, OS for Internet access devices
By Staff Writer Richard Richtmyer
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NEW YORK (CNNfn) - Transmeta Corp., a Silicon Valley start-up chip-design company, on Tuesday netted the first major customers for the low-power, low-cost microprocessors it unveiled early this year.
The new processors, called "Crusoe," will be used in the Internet access devices PC maker Gateway is developing in partnership with America Online.
The new devices, set to hit the market later this year, also will use "Mobile Linux," a slimmed-down version of the freely distributed Linux operating system, which the Santa Clara, Calif.-based company has optimized to work with the Crusoe chips.
Founded in 1995, Transmeta spent its first five years shrouded in secrecy, taking the wraps off its technology in January when the company unveiled the Crusoe chips, which use less power and run cooler than other processors, making them useful for Internet access devices and portable computers.
By using a technique called "code morphing," allowing the translation of the instructions of other processors into the a set of instructions that the Transmeta chips can understand, the new chips also can mimic the performance of chips based on Intel's x86 architecture, which represents the largest installed base of computers worldwide.
The chips, which are being manufactured by IBM Microelectronics under a foundry agreement with Transmeta, are built on a 0.18 micron manufacturing process, which allows more chips to be produced from each silicon wafer, reducing the cost of production.
"When we did our big introduction back in January, it was a technology introduction and one of the questions was, 'Where are the customers?'" Jim Chapman, senior vice president for sales and marketing at Transmeta, said in an interview with CNNfn.com.
 "This is our first major customer announcement, and it's in the Internet appliance area where we're really thrilled to be working with Gateway and AOL," Chapman added. "We believe they've got one of the best strategies in the industry."
In early April, Gateway and AOL outlined a development deal to offer consumer Internet appliances featuring "Instant AOL," that will deliver AOL content to every room in the house. The AOL Gateway countertop appliance, wireless Web pad and desktop appliances are small, lightweight tools for enabling Internet access via the appliances' touchscreens, wireless keyboards or traditional keyboards.
AOL currently has a pending merger agreement with Time Warner, CNNfn's parent company.
Gateway and AOL also were among several companies that invested $88 million in Transmeta. Additional corporate investors included Compal Electronics, Compaq Computer Corp. (CPQ: Research, Estimates), First International Computer, Phoenix Technologies, Samsung, SONY Corp. (SNE: Research, Estimates) and Quanta Computer.
Competition heating up
Gateway and AOL's choice of Transmeta's chips and operating system marks a significant break from the standard PC setup of chips supplied by Intel and some version of Microsoft's Windows operating system, the so-called "Wintel" duopoly.
Executives at Gateway said they selected the Crusoe chips because they offer high performance, operate at lower temperatures (which permits smaller packaging), and have lower power requirements, which dramatically increases battery life.
"The fact that Intel doesn't really offer very low-power x86 devices that are compatible with the Internet infrastructure and Microsoft really doesn't offer a robust Internet operating system that can be used without a hard disk drive has led to this opening," Transmeta's Chapman said. "We've capitalized on both of those vectors, and customers like it and are buying it."
And some market watchers said Transmeta's entry into the market for components designed for use in Internet access devices and other "information appliances" could spur competition there.
"Transmeta has only just recently come out publicly with its announcements about what its been working on, and now they're announcing a design win with a major manufacturer," said Jim Feldhan, president of Semico Research in Phoenix. "That's got to be a positive sign for the robustness of their product."
Though expected to become much more prevalent with the growing prevalence of the Internet, Web appliances are still in an embryonic stage. And so far, Intel has not made much headway in that arena, Feldhan said.
"Intel is not a major player, but I wouldn't count them out just yet," he said. "I would expect as that market standardizes a little bit and the volume starts to pick up, you'll see other players like Intel target that market and become good competitors."
It is likely that Intel will offer a next generation chip based on the processor core currently used in its "StrongARM" products, a family of high-performance RISC-based microprocessors, Feldhan said.
"They are actively designing and marketing those parts for handheld computers and Internet appliances," he said. "I think what we'll see from Intel is them taking a processor like StrongARM and adding features and functions around that core to compete in that market. It would be pretty hard for them to take a Pentium III and strip it down to that level."
Transmeta also expects to make a design win announcement in the portable computing market at the PC Expo trade show taking place in New York City in late June, according to Chapman.
Shares of Gateway (GTW: Research, Estimates) shares were up 4, at 50-13/16, in light trading Tuesday afternoon. AOL (AOL: Research, Estimates) shares rose 5 to 53-1/2. 
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