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Transmeta soars in debut
November 7, 2000: 7:19 p.m. ET

Mobile chip maker's IPO first to double in debut since an IPO in September
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NEW YORK (CNNfn) - Transmeta Corp., the week's most anticipated initial public offering, surged Tuesday by 115 percent and became the first IPO since September to double its IPO price on its first day of trading.

Mobile computer chip maker Transmeta rose $24.25 to $45.25 after opening for trading Tuesday afternoon. Turnover in shares was very high; with only 13 million available, volume was more than 26 million.

"Everything went according to script," said John Fitzgibbon, IPO analyst at WorldFinanceNet.com. "This just underscores that the IPO market's back."

graphicBut as the Santa Clara, Calif.-based company watched its market capitalization grow over $6 billion, an analyst's report raised some questions about the company's advantage in the portable computing market and the performance of its flagship Crusoe chip.

U.S. Bancorp Piper Jaffray semiconductor analyst Ashok Kumar said in a report Tuesday Transmeta's advantage in chips that use less power "may be short-lived, as Intel is fighting back."

The high-profile IPO experienced a bit of confusion in its debut. A Nasdaq-member firm began executing orders prior to Transmeta's official open at 1 p.m. ET. The premature trades caused the IPO to open at $40, up $19 from its IPO price, 15 minutes ahead of its official debut.

Transmeta did finally manage to open on time, posting an opening trade of $44. The premature trades were canceled, a Nasdaq spokesman said.

"He jumped the gun a little bit," the spokesman said.

Transmeta raised $273 million Monday when it sold 13 million shares at $21 each via lead underwriters Morgan Stanley Dean Witter and Deutsche Banc Alex. Brown, $3 above its already boosted range.

Here comes Intel?

In his report, Kumar questioned some of the technological assumptions that contributed to the Transmeta hype. Kumar has a "buy, aggressive" rating on Intel.

He said Transmeta's chips do not save as much power on laptop computers as the company contends and "simply substituting Crusoe for a Pentium III extends battery life by 10 percent to 20 percent, not an insignificant amount but well below Transmeta's claims."

Crusoe chips are designed with a patented technique the company calls "code morphing," meaning they use software to translate the instructions typically handled directly by the transistors on other chips. The "code morphing" makes comparison benchmark tests for the speed of the chip difficult.

"Every other microprocessor that existed before ran at a constant rate," Transmeta CEO David Ditzel told CNNfn.com. "What's different about Crusoe, because of this software-based approach, is that our machine is adaptive. That's one of the techniques we use to save power."

"Because its adaptive, it's harder to measure the performance," Ditzel said. "You need to measure it over a longer period of time. If you measure it over a very tiny interval, the benchmark number that you see will look ridculous. If you measure it over a long interval, it will appear to look very much like an Intel chip."

Ditzel said the company is working with the firms which develop benchmark tests and expects to make an announcement regarding them next Monday.

Kumar said Intel's (INTC: Research, Estimates) manufacturing technology is superior to that of IBM, who physically manufactures the Crusoe for Transmeta. But he said Transmeta could do well with Web pads, large hand-held displays that offer Internet access.

"Transmeta has some unique technology that gives it some advantages for mobile devices, particularly in the nascent Web pad market," he said. "However, we believe the technology has been overhyped, and that Intel is fighting back with improved products. So the question is, will Transmeta end up with an 'Intel Inside' tread on its back?"

Kumar also said Toshiba and Compaq (CPQ: Research, Estimates) would not use the Crusoe, following IBM, which decided against using the Crusoe for the ThinkPad 240.

graphicBut a spokesman for Compaq, which was never touted by Transmeta as a customer, told CNNfn, "we have and will continue to assess the Transmeta chip for use in future products."

"To my knowledge, Compaq never said it planned to use Crusoe, so I'm not really sure what that's all about," said Jim Chapman, senior vice president at

Transmeta.

Toshiba said it does not comment on nonreleased products, but a spokeswoman said the company would continue to actively evaluate the Crusoe for its products.

"We are very excited about Transmeta," the spokeswoman said.

The Transmeta IPO is the first to double since Sept. 28, when Cyphergen Biosytems (CIPH: Research, Estimates) rose 100 percent in its debut. graphic

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