Computer-chip maker Transmeta Corp. (NASDAQ/TMTA) is a stock that I have been following for some time. I remember all the hype back in November, 2000 when Transmeta launched its highly anticipated Initial Public Offering. At that time, there was a trend developing towards smaller computers, laptops, and PDAs. While the main computer-chip makers, Intel Corp. (NASDA/INTC) and Advanced Micro Devices, Inc. (NYSE/AMD), focused on the desktop PC segment, Transmeta was gaining some followers by focusing on developing chips that used lower energy consumption–ideal for the smaller computer market.
Some market watchers even went as far as saying Transmeta would be a force to be reckoned with in their niche. But, since trading at $45 in November, 2000, the stock has steadily seen its value erode in the market to the tune of 96.86%. From a market cap of $8.24 billion, Transmeta is currently trading at a market cap of $270 million.
Here is the problem. Transmeta was correct in predicting the trend for portable devices and laptops would rise, but the problem was Intel and AMD also figured this out. Once this happened, there was very little hope that Transmeta could fend off the industry giants. The only hope was a takeover of Transmeta, but it failed to materialize as the major computer-chip makers with their huge resources and technology expertise developed competing low power chips with more features.
Now Transmeta is struggling to stay afloat. Its chips, while used in some laptops, have yet to gain wide market acceptance. And, in business, this could be a killer.
On the operational front, there has been some encouraging news. Transmeta has been profitable for the last two quarters, beating Street estimates in each. Sounds encouraging but there is a catch: Transmeta is expecting a loss of about $0.03 in the fourth quarter. And, it is this type of inconsistency that makes Transmeta a questionable investment. Wall Street also predicts its revenues for fiscal 2006 to fall by 6.8 percent. This is not exactly what I would want to see in a potential investment.
If you own Transmeta, you may want to seriously think of moving on. While I do not always go with the market leaders, in this case, I would.