The purpose of this report is to determine whether the investors at Marketing Select Investments should invest in to the Transmeta Corporation.
Transmeta, founded in 1995 by David Ditzel, is currently positioning itself to develop, in concert with OEM [Original Equipment Manufactures] customers, platform solutions for the Mobile Internet Computing market.1 Segment
The Mobile Internet Computing market encapsulates many different areas, including but not restricted to wireless Internet appliances, and ultra-light notebooks. The growing market for Internet appliances shows that 18.5 million Internet appliances will ship in the U.S. by 2001. Compared with 15.7 home PCs.2 Projections show that the Internet appliance market will hit $15.3 billion by 2002.3
The current segment is still very young. Internet appliances are now just beginning to find acceptance, as well as the market place. What was once a game of “vaporware” (to release specifications and numbers, only to have no working, nor any actual production of the item planned in the current future) by many manufactures to keep pace with vaporware announcements by other competitors, actual products have begin to surface.
These first products (such as the Netpliance iOpener4), were based on former technology; older processors that were meant for the desktop, and not the small mobile market.
Devices like the iOpener are were Transmeta come into the picture. With Transmeta’s processor, Crusoe, companies such as Netpliance can build on the chips significant processing power, without suffering any gain in size, or heat, and gain in battery life. The chip, which needs no heatsink or fan, and runs at speeds comparable to that of a desktop processor, give OEM’s the ability to build full-featured appliances and notebooks at a fraction of the size and the cost.
The PC processor space, largely dominated by Intel Corp. will directly compete, along with Advanced Micro Devices (AMD), with Transmeta, for dominance in this growing market. Currently, Intel, holds upwards of 70-80% of the global market for PC processors, with AMD coming in with about at around 15-20% share.5
The significance of this is that the Transmeta processor was not built with the desktop in mind. While processors from Intel and AMD are downgraded to work in mobile devices, the Transmeta Crusoe was built significantly for it. Intel and AMD are actively pushing the mobile market, both coming out with power-saving solutions. But as history shows, Intel is slow to move into new segments, and has run into many production problems of late, allowing AMD to begin chipping away at the desktop market. AMD, seeing Intel’s problems, has begun to move into the workstation/server market, a sacred Intel-only market that could allow AMD to make major inroads in derailing the giant.
As Intel and AMD try to compete with each other, they put less pressure on Transmeta. Currently, the only other chipmaker that has a chip specifically made to compete in the Internet appliance market, and against Transmeta, is National Semiconductor, with their Geode processor. But even the Geode processor is being placed only in Web Pads at this point, namely by 3Com, which has been delayed.6 Other OEM’s are also said to be working with the Geode, but no other products have been announced.
Other possible competitors in this growing space include VIA Technology, who bought out National Semiconductors Cyrix processor brand. Currently they are developing Joshua, an x86 based chip, much like Intel and AMD processors.
Currently, Transmeta is producing 3 different processors, the TM3200, TM5400, and the TM5600. The TM3200 is being marketed to be used in Internet Appliances, while the TM5400 and TM5600 are being marketed in the ultra-light notebook market. OEM’s such as Sony7, and Hitachi8 currently have debuted ultra-light notebooks based on the Crusoe in Japan, although the chip used in both models is not known.
Other OEM’s onboard to create Crusoe based processors include IBM, Fujitsu, and NEC, as well as Gateway, who will create a Crusoe-based web pad.9 Each has show demo’s of products based on Crusoe at various trade shows, including PC Expo.
In the US, consumers can expect to see end products based on Crusoe in the coming months, including a Sony based ultra-light notebook in the next three weeks (it is currently selling in Japan).10
Although the Transmeta Crusoe is being marketed in as a processor, the end consumer will never actually see the chip. It is currently being sold to OEM’s, with the idea that they will create a product based on Crusoe. Intel, AMD and VIA sell their processors not only to OEM’s, but also to end consumers and mom-and-pop shops, so that people outside of the large OEM’s can build their own systems if they like.
This is not Transmeta’s current strategy. The Crusoe, built very small and using a ball grid array (BGA) package, is not the a chip design that is meant for anything but OEM’s, who have the equipment and technology to build products that an end consumer can use.
The Mobile Internet Computing market is growing rapidly, with OEM’s looking for the best solution to create small, low-power devices that are to use. Transmeta has positioned itself as the company to provide low cost, low power consumption and high processing power to OEM’s looking to create such devices.
With Intel’s current production problems, AMD’s current attack on Intel territory and National Semiconductor simply lacking OEM contracts, the Transmeta Crusoe is poised to take the Internet Appliance and ultra-light notebooks markets by storm.
OEM’s are the primary buyer of this product, and to cater and market to their needs is the greatest importance. The only marketing that Transmeta must do to the end consumer is to show that products based on Crusoe are as good as anything put out by Intel or AMD. And the only way to do that is to sell their chips to OEM’s and get products on the market that are based on the Crusoe processor.
1 About Transmeta, http://www.transmeta.com/about/, October 8, 2000
Berst, Jesse, “Why You're Craving an Internet Appliance”, ZDNet AnchorDesk,http://www.zdnet.com/anchordesk/story/story_4098.html, October 14, 2000
3 Berst, Jesse, “Why You're Craving an Internet Appliance”, ZDNet AnchorDesk,http://www.zdnet.com/anchordesk/story/story_4098.html, October 14, 2000
4 Netpliance iOpener, http://www.netpliance.com/, October 8, 2000