Transmeta Reports First Quarter 2006 Results; Expects To Meet First Half Financial Guidance, Lowers Full Year Financial Guidance

SANTA CLARA, Calif.—(BUSINESS WIRE)—May 9, 2006— Transmeta Corporation (NASDAQ: TMTA), the leader in efficient computing technologies, today announced financial results for the fiscal 2006 first quarter ended March 31, 2006.

Highlights for the 2006 First Quarter

-- Increased revenue by 185% to $19.5 million compared to $6.9 million in the first quarter of 2005

-- Recognized $9.1 million of previously deferred revenue related to Microsoft services

-- Increased cash and short-term investments balance to $57.4 million at March 31, 2006

-- Held negative operating cash flow to $2.0 million, offset by proceeds from stock option exercises

-- Announced a LongRun2 license with Toshiba, the fourth major company to license Transmeta's advanced power management technologies

Business Update

"Our solid first quarter marked another period of excellent execution for Transmeta," commented Arthur L. Swift, president and CEO. "As anticipated, we completed key project deliverables for our Microsoft engineering services contract, we signed our fourth LongRun2 licensee, Toshiba, and we entered into the second year of our engineering services relationship with Sony. The modifications we made to our business model last year have resulted in a much stronger company with a blue chip customer base. We have increasing interest in our key technologies and a growing intellectual property portfolio. Our improved financial position now allows us to pursue new business initiatives and opportunities."

Revenue for the first quarter of 2006 was $19.5 million, compared to $6.9 million in the first quarter of 2005. The year-over-year increase reflects the recognition of the Microsoft services revenue of approximately $9.1 million. Gross margin for the first quarter was 43.4% compared to a gross margin of 28.3% for the first quarter of 2005. The Company had a net loss of $1.6 million, or a loss of $0.01 per share, for the first quarter of 2006 compared with a net loss of $21.1 million, or a loss of $0.11 per share, in the first quarter of 2005.

The Company's cash, cash equivalents and short term investments at March 31, 2006 totaled $57.4 million. In addition, the Company has a debt-free balance sheet.

Guidance

The Company is revising its guidance in light of both reductions in Sony's requirements for Transmeta engineering services as reflected in the current project agreements entered into with Sony in April 2006 and the Company's current expectations regarding further decisions by Sony and other potential customers about prospective new engineering service engagements in 2006.

The Company now anticipates:

-- Meeting first half financial guidance of at least $27 million of revenue and negative operating cash flow of no more than $10 million

-- Revising full year revenue guidance to a range of $48.0 to $58.0 million

-- Net loss of $26 million to $16 million, or a loss of $0.13 to $0.08 per share, which includes non-cash charges of $7 million of patent amortization and $6 million of stock option compensation expense

-- Full year negative operating cash flow of $28 million to $20 million

"Earlier this quarter, we entered into new project agreements with Sony for their new fiscal year, but at a lower revenue level than anticipated. As a result, our services revenue may be lower than we previously expected and we have reduced our full year revenue guidance to between $48.0 to $58.0 million," commented Mark R. Kent, chief financial officer. "Based on our current outlook, we are forecasting increased negative operating cash flow, which we expect to partially offset by working capital or partner supported financing. We also expect a somewhat higher net loss for the year, but we remain committed to building a business characterized by an expanding customer base, recurring revenue streams and sustained profitability."

Conference Call

As previously announced, Transmeta's management will host a conference call today at 5:00 p.m. Eastern time / 2:00 p.m. Pacific time to discuss the operating performance for the quarter. The conference call will be available live over the Internet at the investor relations section of Transmeta's website at www.transmeta.com. To listen to the conference call, please dial (913) 981-5545. A recording of the conference call will be available for one week, starting one hour after the completion of the call, until 9:59 p.m. Pacific time on May 16. The phone number to access the recording is (888) 203-1112, and the passcode is 7623346. For callers outside the U.S., please dial (719) 457-0820, with the same passcode.

About Transmeta Corporation

Transmeta Corporation develops and licenses innovative computing, microprocessor and semiconductor technologies and related intellectual property. Founded in 1995, we first became known for designing, developing and selling our highly efficient x86-compatible software-based microprocessors, which deliver a balance of low power consumption, high performance, low cost and small size suited for diverse computing platforms. We now also provide, through strategic alliances and under contract, engineering services that leverage our microprocessor design and development capabilities. In addition to our microprocessor product and services businesses, we also develop and license advanced power management technologies for controlling leakage and increasing power efficiency in semiconductor and computing devices. To learn more about Transmeta, visit www.transmeta.com.

Safe Harbor Statement

This release contains forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such statements speak only as of the date of this release, and we will not necessarily provide updates of our projections or other forward-looking statements. Investors are cautioned that such forward-looking statements are subject to many risks and uncertainties, and may differ materially or adversely from our actual results or future events. Important risk factors that could have material or adverse effects on our results include general economic and political conditions, specific conditions and volatility in the markets that we address, the risk that we might not successfully negotiate any additional agreements to provide engineering services, the potential loss of key technical and business personnel, practical challenges in modifying our business model, our ability to satisfy the continued listing requirements of the Nasdaq Stock Market, the adoption and market acceptance of our products and technologies by current and potential customers and licensees, our inability to predict or ensure that third parties will license our technologies or use our technologies to generate royalties, the rescheduling or cancellation of significant customer orders, difficulties in developing or manufacturing our products in a timely and cost effective manner, our dependence on third parties for sourcing materials and providing manufacturing services, intense competition and competitive pressures, the ability to enter strategic collaborations or raise financing on satisfactory terms, patents and other intellectual property rights, and other risk factors. We urge investors to review our filings with the Securities and Exchange Commission, including our most recent reports on Forms 10-K and 8-K, which describe these and other important risk factors that could have an adverse effect on our results. We undertake no obligation to revise or update publicly any forward-looking statement for any reason.

Transmeta is a trademark of Transmeta Corporation. All other product or service names mentioned herein are the trademarks of their respective owners.
                         Transmeta Corporation
                Condensed Consolidated Balance Sheets
                            (in thousands)


                                            March 31,   December 31,
                                                      2006                  2005(1)
                                                                                      -----------    -----------

ASSETS
Current  assets:
          Cash  and  cash  equivalents                              $27,522            $27,659
          Short-term  investments                                      29,859              28,811
          Accounts  receivable                                                  216                1,686
          Inventories                                                                  177                    265
          Prepaid  and  other  current  assets                    2,241                2,279
                                                                                      -----------    -----------
Total  current  assets                                                    60,015              60,700

Property,  plant  and  equipment,  net                          1,436                1,623
Patents  and  patent  rights,  net                                14,369              16,080
Other  assets                                                                          920                    911
                                                                                      -----------    -----------
TOTAL  ASSETS                                                                  $76,740            $79,314
                                                                                      ===========    ===========

LIABILITIES  AND  STOCKHOLDERS'  EQUITY
Current  Liabilities:
          Accounts  payable                                                $      733            $  1,521
          Accrued  compensation  and  benefits                  2,951                3,279
          Deferred  income,  net                                            5,847                5,937
          Accrued  other                                                          1,992                2,109
          Advances  from  customers                                      3,586                7,260
          Accrued  restructuring  costs                              1,792                1,803
                                                                                      -----------    -----------
Total  current  liabilities                                          16,901              21,909

Long-term  accrued  restructuring  costs                    2,054                2,453
                                                                                      -----------    -----------
Total  liabilities                                                          18,955              24,362
                                                                                      -----------    -----------

Stockholders'  equity:
          Common  stock  (includes  APIC)                        717,562            713,129
          Treasury  stock                                                      (2,439)            (2,439)
          Accumulated  other  comprehensive  loss              (148)                (195)
          Accumulated  deficit                                        (657,190)        (655,543)
                                                                                      -----------    -----------
Total  stockholders'  equity                                        57,785              54,952
                                                                                      -----------    -----------
TOTAL  LIABILITIES  AND  
  STOCKHOLDERS'  EQUITY                                                $76,740            $79,314
                                                                                      ===========    ===========


(1)  Derived  from  the  Company's  audited  financial  statements  as  of
December  31,  2005,  included  in  the  Company's  Form  10-K  filed  with  the
Securities  and  Exchange  Commission.



                                                TRANSMETA  CORPORATION
                              CONSOLIDATED  STATEMENTS  OF  OPERATIONS
                      (Dollars  in  thousands,  except  per  share  data)
                                                        (Unaudited)

                                                                                                    Three  Months  Ended
                                                                                                ----------------------
                                                                                                March  31,        March  31,
                                                                                                    2006                  2005
                                                                                              ----------      ----------
Revenue:
    Product                                                                              $      589          $    6,406
    License                                                                                          -                        -
    Service                                                                                18,920                    448
                                                                                              ----------      ----------
          Total  revenue                                                              19,509                6,854
                                                                                              ----------      ----------

Cost  of  revenue
    Product  (1)                                                                              162                4,752
    License                                                                                          -                        -
    Service  (1)                                                                        10,881                    161
                                                                                              ----------      ----------
          Total  cost  of  revenue                                              11,043                4,913
                                                                                              ----------      ----------
Gross  profit                                                                            8,466                1,941
                                                                                              ----------      ----------

Operating  expenses:
    Research  and  development  (1)                                        3,252              12,222
    Selling,  general  and  administrative  (1)                  5,544                7,956
    Restructuring  charges                                                            74                1,309
    Amortization  of  intangible  assets                              1,711                1,711
    Stock  compensation                                                                    -                    (34)
                                                                                              ----------      ----------
          Total  operating  expenses                                        10,581              23,164
                                                                                              ----------      ----------
Operating  loss                                                                      (2,115)          (21,223)
    Interest  income  and  other,  net                                        503                    246
    Interest  expense                                                                    (35)                (108)
                                                                                              ----------      ----------
Net  loss                                                                                $(1,647)        $(21,085)
                                                                                              ==========      ==========

Net  loss  per  share  -  basic  and  diluted                    $  (0.01)        $    (0.11)
                                                                                              ==========      ==========

Weighted  average  shares  outstanding  -  
  basic  and  diluted                                                            193,365            189,151
                                                                                              ==========      ==========


(1)    Includes  stock-based  compensation  charges  as  follows:
      Cost  of  product  revenue                                            $          4          $            -
      Cost  of  service  revenue                                                    601                        -
      Research  and  development                                                  258                        -
      Selling,  general  and  administrative                            454                        -
                                                                                              ----------      ----------
      Total  stock-based  compensation                              $  1,317          $            -
                                                                                              ==========      ==========
 


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