Transmeta (Semiconductor) (TMTA)

[DewDiligence]

wbmw: some of your questions have simple answers:

>> R&D down: last 4 quarters it was $16-19M, and now it's $13.7M. Transmeta is cutting in the wrong places, but it doesn't look like they have a choice. My guess is that they reduced headcount. <<

Yes, they did have a layoff. It was announced at the July CC. Headcount was reduced from 480 to 295 (a 38.5% cut) during the third quarter. The drop in R&D from 2Q02 to 3Q02 was only 28.5%, which shows that there was a greater expenditure of R&D per employee in 3Q02 than in prior quarters. All of the above is part of the previously-announced plan to contain costs.

>> Cash burn: [cash] from $180M in Q2 to $156M in Q3, and forecasted to be $129M in Q4. It's a falling knife, and the trend has been there for the past 5 quarters at least. At this rate, it's not too long before it [cash] hits zero. <<

You are overlooking the one-time expenses for severance (and other out-of-pocket costs associated with the layoff). On a recurring basis, cash burn from operations has been reduced and is expected to remain at the new lower level in the fourth quarter.

>> Long term debt: this has gone up. Has TMTA been taking out any new loans? <<

You are overlooking the fact that debt is divided into two pieces: a portion listed under “current liabilities” and a portion listed under “long-term liabilities”. At 6/30/02, the two portions were 16156K and 22176K, respectively, for a total debt of 38332K. At 9/30/02, the corresponding numbers were 15640 and 23313, for a total debt of 38953K. In other words, total debt increased by just $621,000 during 3Q02.

(Moreover, this tiny increase was an accounting artifact which owes to the way TMTA calculates the present value of the license payments to IBM and Epson [the source of TMTA’s debt]. Since license payments are due in December, there are fewer quarters used for discounting the payments into a present value at 9/30/02 than at 6/30/02, which results in a slightly higher present-value calculation.)

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wbmw: if you are still serious about investing in TMTA, I suggest that you at least listen to TMTA’s CC’s and read the company’s SEC filings. Regardless of your intentions vis-à-vis investing in TMTA, I continue to welcome your input from the INTC perspective. Regards, Dew