Transmeta up on buyout speculation

@ 2005/02/07
CS First Boston says AMD could target Transmeta

By Tomi Kilgore, MarketWatch
Last Update: 2:37 PM ET Feb 7, 2005

NEW YORK (MarketWatch) -- Shares of Transmeta Corp. surged Monday after CS First Boston floated the idea that the microprocessor maker would be an attractive target for Advanced Micro Devices.

"A long shot...maybe," he said. "While this is really just an idea we thought up on a dark, rainy San Francisco winter night, we believe it is enough of a possibility that investors should be prepared to understand the impact."

Investors thought it was possible as well, and sent the shares of Santa Clara, Calif.-based Transmeta (TMTA) running up 12 cents, or 10 percent, to $1.29.

"We believe consolidation may start to pick up in the semiconductor industry for a variety of reasons, and thus have brainstormed deals that could make sense," Analyst Michael Masdea in a note to clients.

"Advanced Micro is at a pivotal point, and in December we speculated that AMD was getting closer to carving out its flash memory business," Masdea said.

Sunnyvale, Calif.'s Advanced Micro (AMD) slumped 21 cents, or 1.2 percent, to $17.28, and have lost 22 percent since the end of 2004.

Masdea thinks Transmeta would be a choice because of its intellectual property in the portable processing and power management market, which he feels is the direction of computing and consumer electronics.

He also feels a number of Transmeta's customer relationships in Japan would fit well with AMD's Japanese original equipment manufactures.

It also helps that Transmeta's stock is "getting cheaper." Even with Monday's rally, the stock has still lost 20 percent since the end of 2004, and 62 percent since the end of 2003.

"While technology mergers and acquisitions are often hard to consummate, we believe smaller acquisitions such as this tend to be more successful," Masdea said. Transmeta's recent decision to exit the microprocessor business removes some overlap with AMD while keeping the intellectual property in house."

What could diffuse speculation of a merger, Masdea said, was that AMD has a lot on its plate this year, given increased competition from rival chipmaker Intel (INTC), and the lack of balance sheet flexibility.

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