Transmeta’s Crusoe

Ravi Madapati
Faculty Member
Icfai Knowledge Center

Market acceptance

A ‘megahertz treadmill’ drove the entire computer industry. New processors with new megahertz ratings appeared on the market, with overwhelming rapidity. Sometimes, even before the current model arrived at retailers’ shelves, it had to be marked.

Even before Crusoe had hit store shelves in 2000, critics were already skeptical about its performance. Tests suggested that the chip sacrificed speed for longer battery life—at a price that might not be worth it. But Transmeta claimed that these tests could not be applied to Crusoe because of Crusoe’s unusual architecture, which combined software and hardware. Hence the company claimed that standard benchmark tests that were used to gauge the performance of hardware-based processors like Pentium were unlikely to capture the benefits of Crusoe. Indeed this was the reason Transmeta gave for not releasing benchmarks in the first place. During operation, the chip recompiled x86 code into native Crusoe code. This slowed down performance drastically. However, Transmeta emphasized that the recompiling process only had to be carried out once so that the operation speeded up during the course of use. Transmeta maintained that while doing a repetitive task, performance went up after a couple of iterations, so Crusoe was fast enough for typical applications, and far more power-efficient than similar processors from Intel and AMD.

By the end of 2000, Compaq and IBM had announced plans to use Crusoe in their laptops. But as more and more negative reviews of Crusoe appeared in the press, Compaq and IBM grew more and more skeptical about Crusoe. At the same time, the Japanese manufacturers began using Crusoe. Indeed, Crusoe developed a small cult-like following in Japan.

On June 20, 2001, Transmeta shocked the market with the news that second quarter sales were “drastically off course”. The company attributed the shortfall to an economic downturn in Japan, a market on which Crusoe was heavily dependent. But some analysts felt that Transmeta’s products were facing stiff resistance due to their poor functionality. Meanwhile, Crusoe was facing resistance from retail customers. The $1500 $2000 price tag on Crusoe-based notebook computers was a price considerably higher than comparable lightweight computers that were just as good or better, but which sold for approximately $1300.Manufacturers seemed to be postponing the purchase of Crusoe processors until the company came out with a better performing version. Upon these revelations, Transmeta stock dropped below $3 per share.

To compound matters, Transmeta had to deal with hostile investors. By the end of 2001, class-action suits were launched against Transmeta by disenchanted investors in the Northern District of California. Some of the charges were[1]:
Documents, releases and/or statements disseminated to the investing public and Transmeta shareholders during the Class Period had omitted and/or misrepresented material facts about the business, financial condition and accounting practices of the company;Defendants had made materially misleading statements about the business, financial condition and accounting practices of the company;Defendants had acted knowingly or with conscious or deliberate recklessness in making materially false statements and omitting material facts about the business, financial condition and accounting practices of the company;The market price of the company’s securities had been artificially inflated during the Class Period due to the non-disclosures and/or material misrepresentations complained of herein; A few months after its launch, even though Crusoe seemed to be a failure, Transmeta continued to show confidence in the product. The company battled the class action suits even as it worked on product improvement.

 

[1]http://www.lieffcabraser.com/transmeta_press01.htm.

© Icfai Press. Global CEO • December 2003, All Rights Reserved.