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Transmeta's Risk Factors

Transmeta's Risk Factors - PCSTATS
Abstract: After looking over the 500 page IPO proposal, we pulled out the sections relating to the full disclosure of risk. Important info for investing to be sure.
Filed under: CPU / Processors Published:  Author: 
External Mfg. Website: Transmeta Sep 21 2000   Max Page  
Home > Reviews > CPU / Processors > Transmeta

Sections 6-10

6. OUR OPERATING RESULTS ARE DIFFICULT TO PREDICT IN ADVANCE AND MAY FLUCTUATE SIGNIFICANTLY, AND A FAILURE TO MEET THE EXPECTATIONS OF SECURITIES ANALYSTS OR INVESTORS WOULD LIKELY RESULT IN A SUBSTANTIAL DECLINE IN OUR STOCK PRICE.

There is little historical financial information that is useful in evaluating our business, prospects and future operating results. You should not rely on quarter-to-quarter comparisons of our results of operations as an indication of our future performance. We expect our future operating results to fluctuate significantly from quarter to quarter. If our operating results fail to meet or exceed the expectations of securities analysts or investors, our stock price would likely decline substantially. Factors that are likely to cause our results to fluctuate include the following: - the gain or loss of significant customers or significant changes in purchasing volume;

  • the amount and timing of our operating expenses and capital expenditures;
  • changes in the volume of our product sales and pricing concessions on volume sales; - fluctuations in manufacturing yields;
  • cancellations, changes or delays of deliveries to us by our manufacturer;
  • the timing, rescheduling or cancellation of customer orders;
  • the varying length of our sales cycles;
  • the availability and pricing of competing products and technologies and the resulting effect on sales and pricing of our products;
  • our ability to specify, develop, complete, introduce and market new products and technologies and bring them to volume production in a timely manner;
  • fluctuations in the cost and availability of raw materials, such as wafers, chip packages and chip capacitors; - the cost and availability of manufacturing, assembly and test capacity;
  • fluctuations in the cost and availability of components, such as dynamic random access memory, or DRAM, that our customers require to build systems that incorporate our products;
  • the rate of adoption and acceptance of new industry standards in our target markets;
  • seasonality in some of our target markets; - the effectiveness of our product cost reduction efforts and those of our suppliers;
  • problems or delays due to shifting our products to smaller geometry process technologies and designing our products to achieve higher levels of design integration;
  • changes in the mix of products we sell;
  • changes in demand by the end users of our customers' products;
  • variability of our customers' product life cycles; and - changes in the average selling prices of our microprocessors or the products that incorporate them. Because a large portion of our expenses, including rent, salaries and capital leases, is fixed and difficult to reduce, if our revenue does not meet our expectations, the adverse effect of the revenue shortfall will be magnified by the fixed nature of our expenses.

7. COMPETITION IN THE SEMICONDUCTOR MARKET IS INTENSE; MANY OF OUR COMPETITORS AND POTENTIAL COMPETITORS ARE MUCH LARGER THAN WE ARE AND HAVE SIGNIFICANTLY GREATER RESOURCES; WE MAY NOT BE ABLE TO COMPETE EFFECTIVELY.

The market for microprocessors is intensely competitive, rapidly evolving and subject to rapid technological change. We believe that competition will become more intense in the future and may cause price reductions, reduced gross margins and loss of market share, any one of which could significantly reduce our future revenue or any income. Significant competitors that offer microprocessors for the notebook computer market include Advanced Micro Devices and Intel. Significant competitors that offer microprocessors for the Internet appliance market include manufacturers of RISC microprocessors such as licensees of ARM technology and licensees of MIPS technology. In addition, we face competition from providers of x86 compatible microprocessors for the Internet appliance market, including National Semiconductor. Many of our current and potential competitors have longer operating histories, significantly greater financial, technical, product development and marketing resources, greater name recognition and significantly larger customer bases than we do. Our competitors may be able to develop products comparable or superior to those we offer, adapt more quickly than we do to new technologies, evolving industry trends and customer requirements, and devote greater resources to the development, promotion and sale of their products than we can. Many of our competitors also have well-established relationships with our existing and prospective customers and suppliers. In addition, many of our competitors, either alone or with other companies, have significant influence in our target markets. Negotiating and maintaining favorable customer and strategic relationships are and will continue to be critical to our business. If our competitors negotiate strategic relationships on more favorable terms than we are able to negotiate, or if they structure relationships that impair our ability to form strategic relationships, our competitive position and our business would be substantially damaged. Furthermore, a number of these competitors may merge or form strategic relationships that would enable them to offer, or bring to market earlier, products that are superior to ours in terms of features, quality, pricing or other factors. We expect additional competition from other established and emerging companies. We may not be able to compete effectively against current and potential competitors, especially those with significantly greater resources and market leverage.

8. OUR PRODUCTS MAY HAVE DEFECTS, WHICH COULD HARM OUR REPUTATION, DECREASE MARKET ACCEPTANCE OF OUR PRODUCTS, CAUSE US TO LOSE CUSTOMERS AND REVENUE, AND RESULT IN LIABILITY TO US.

Highly complex products such as our microprocessors may contain either hardware or software defects or bugs. Often, these defects and bugs are not detected until after the products have been shipped. If any of our products contains defects, or has reliability, quality or compatibility problems, our reputation might be damaged significantly and customers might be reluctant to buy our products, which could harm our ability to retain or attract customers. In addition, these defects could interrupt or delay sales. We may have to invest significant capital and other resources to correct these problems. If any of these problems are not found until after we have commenced commercial production of a new product, we might incur substantial additional development costs. If we fail to provide solutions to the problems, such as software upgrades or patches, we could also incur product recall, repair or replacement costs. These problems might also result in claims against us by our customers or others. In addition, these problems may divert our technical and other resources from other development efforts. Moreover, we would likely lose, or experience a delay in, market acceptance of the affected product or products, and we could lose credibility with our current and prospective customers. This is particularly significant as we are a new entrant to a market dominated by large well-established companies.

9. WE EXPECT TO DERIVE A SUBSTANTIAL PORTION OF OUR REVENUE FROM A SMALL NUMBER OF CUSTOMERS, AND OUR REVENUE WOULD DECLINE SIGNIFICANTLY IF ANY MAJOR CUSTOMER CANCELS, REDUCES OR DELAYS A PURCHASE OF OUR PRODUCTS.

We expect that a small number of OEM customers and distributors will account for a significant portion of our revenue. As a result, our future success will depend upon the timing and size of future purchase orders, if any, from these customers and, in particular: - the success of these customers in marketing products that incorporate our products; - the product requirements of these customers; and - the financial and operational success of these customers. We expect that our distributor agreements will be nonexclusive and will not contain minimum purchase commitments. Should any distributor fail to emphasize sales of our products, choose to emphasize alternative products or promote products of our competitors, our revenue and results of operations would be harmed. We expect that our sales to OEM customers will be made on the basis of purchase orders rather than long-term commitments. In addition, customers can delay, modify or cancel orders without penalty. Many of our customers are significantly larger than we are and have sufficient bargaining power to demand lower prices and better terms. The loss of any one of our future major customers, or the delay of significant orders from these customers, could reduce or delay our recognition of product revenue and harm our reputation in the industry.

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Contents of Article: Transmeta
 Pg 1.  Transmeta's Risk Factors
 Pg 2.  Sections 1-6
 Pg 3.  — Sections 6-10
 Pg 4.  Sections 10-14
 Pg 5.  Sections 15-19
 Pg 6.  Sections 19-22
 Pg 7.  Sections 23-27
 Pg 8.  Sections 28-31
 Pg 9.  sections 32-35

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