Transmeta's Risk Factors
Investing in our common stock involves a
high degree of risk. You should carefully consider the following risk factors,
as well as other information contained in this prospectus, before deciding to
invest in shares of our common stock. If any of the following risks actually
occurs, our business, financial condition and results of operations would
suffer. In this case, the trading price of our common stock could decline and
you might lose all or part of your investment in our common stock.
1. RISKS RELATED TO OUR BUSINESS AND INDUSTRY WE HAVE A
HISTORY OF LOSSES, EXPECT TO INCUR FURTHER SIGNIFICANT LOSSES AND MAY NEVER
ACHIEVE OR MAINTAIN PROFITABILITY.
We have a history of substantial losses,
expect to incur further significant losses, and do not expect to achieve
profitability in the near future. We incurred net losses of $10.1 million in
1998, $41.1 million in 1999 and $43.4 million in the first half of 2000. As of
June 30, 2000, we had an accumulated deficit of approximately $119.4 million. We
intend to significantly increase our product development, sales and marketing,
and administrative expenses. We also expect to incur substantial non-cash
charges relating to the amortization of deferred compensation, which will serve
to increase our net losses further. We cannot assure you that our revenue will
grow and we may never achieve or maintain profitability. Even if we achieve
profitability, we may not be able to sustain or increase profitability on a
quarterly or an annual basis.
2. OUR BUSINESS IS DIFFICULT TO EVALUATE BECAUSE WE RECOGNIZED OUR FIRST PRODUCT
REVENUE IN THE FIRST HALF OF 2000.
We introduced our first Crusoe
microprocessors in January 2000 and recognized our first product revenue from
these products in the first half of 2000. We have manufactured limited
quantities of our products to date, but have not shipped any products in volume.
Thus, we have only a very limited operating history with all of our products.
This limited history makes it difficult to evaluate our business. We derived
substantially all of our revenue for 1997, 1998 and 1999 from license fees, but
do not expect any license fee revenue in the foreseeable future. As a result, we
need to generate substantial future revenue from product sales, but our ability
to manufacture our products in production quantities and the revenue and income
potential of our products and business are unproven. You should consider our
chances of financial and operational success in light of the risks,
uncertainties, expenses, delays and difficulties associated with new businesses
in highly competitive technology fields, many of which may be beyond our
control. If we fail to address these risks, uncertainties, expenses, delays and
difficulties, the value of your investment would decline.
3. WE DEPEND ON INCREASING DEMAND FOR OUR CRUSOE MICROPROCESSORS.
We expect to derive virtually all of our
revenue from the sale of our Crusoe microprocessors for the foreseeable future.
We have not shipped any of these products in volume. Therefore, our future
operating results will depend on the demand for Crusoe by future customers. If
Crusoe is not widely accepted by the market due to performance, price,
compatibility or for any other reason, or if, following acceptance, we fail to
enhance Crusoe in a timely manner, demand for our products may fail to increase.
If demand for our Crusoe products does not increase, our revenue will not
4. IF WE FAIL TO PENETRATE THE NOTEBOOK COMPUTER MARKET, OUR OPERATING RESULTS
WOULD BE IMPAIRED
Our success depends upon our ability to
sell our Crusoe microprocessors in volume to makers of notebook computers. Due
to our software-based approach to microprocessor design, we have been required,
and expect to continue to be required, to devote substantial resources to
educate prospective customers in the notebook computer market about the benefits
of our Crusoe products and to assist potential customers with their designs. In
addition, most notebook computer companies have made significant investments in
designing their systems for other microprocessor technology and might incur
significant costs if they were to switch to our products. Our target customers
may not choose our products for technical, cost or other reasons. If our Crusoe
products fail to achieve widespread acceptance in the notebook computer market,
our substantial marketing and development expenditures may not be offset by
5. IF THE INTERNET APPLIANCE MARKET FAILS TO GROW AS WE ANTICIPATE OR IF WE FAIL
TO MEET THE NEEDS OF THIS MARKET, OUR GROWTH WOULD BE IMPAIRED.
The growth of our business depends in
part on the increased acceptance and use of Internet appliances. We depend on
the ability of our target customers to develop new products and enhance existing
products for the Internet appliance market that incorporate our products and to
introduce and promote these products successfully. The market for Internet
appliances depends in part upon the deployment of wireless technologies that
enable the delivery of Internet content at a speed comparable to that of a
desktop computer. The wireless technologies currently under development might
not fully address the needs of mobile Internet users. If the use of Internet
appliances does not grow as we anticipate, or our targeted customers do not
incorporate our products into theirs, our operating results would be materially
adversely affected. In addition, the market for Internet appliances is new and
evolving. Internet appliance manufacturers are likely to have varying
requirements. To meet the requirements of different Internet appliance
manufacturers, we may be required to change our product design or features,
sales methods or pricing policies. The costs of addressing these requirements
could be substantial and could harm our operating results.