In Silicon Valley, the same plot line has a way of repeating itself.
First, a small but promising technology startup becomes the talk of the town. It launches a public stock offering with stunning results. A few months later, the stock plummets, investors get mad, and class-action lawyers get busy.
This week, the company with the lead role in that oft-recurring story line is Transmeta Corp., the power-saving chipmaker that launched one of the most dazzling stock market debuts of the season last November.
Now, nearly eight months after its spectacular IPO, with its stock selling for one tenth its former high, Transmeta (TMTA) is finding itself the object of unsolicited attention from some of the nation's largest class-action law firms.
In the last two days, five firms have taken part in actions against the Santa Clara, California, company, charging that Transmeta executives failed to inform investors about serious flaws in the design of its chips. They claim that investors were duped by misleading financial statements into paying inflated prices for a hot stock that quickly turned cold.
At the core of the first suit, filed by well-known class-action firm Milberg Weiss, is the accusation that Transmeta promoted its line of Crusoe chips on their ability to save power in laptop computers, but didn't fill in investors about the drawbacks.
"Unbeknownst to shareholders, at the time of the IPO, Transmeta's Crusoe chips could not deliver both longer battery life and high performance," the suit states. "Rather, significant performance attributes were being sacrificed in order to gain longer battery life."
Lawyers charge that Transmeta failed to tell investors that its chips could only save on power by performing at significantly slower speeds than comparable chips from AMD and Intel.
Transmeta spokesman Phil Bergman said that the company has seen rumors in the media about a shareholder lawsuit, but has not been served with any actual complaint. Transmeta's official line, he said, is that "the rumored lawsuit is without merit and the company will vigorously contest it."
Like most investor class-actions, the suit against Transmeta doesn't lay out precisely how much in damages the plaintiffs should get. For the moment, the plaintiffs are demanding a trial by jury.
Predictably, the suit comes on the heels of a recent round of bad news from Transmeta. On June 20, the company issued an earnings warning to investors, predicting that its quarterly revenue would come in between 40 percent and 45 percent below expectations.
Transmeta attributed the expected earnings shortfall to reductions in shipments to major buyers. It blamed this partly on economic weakness in Japan, where its largest concentration of customers is located. The company also said it would take an inventory charge of undisclosed magnitude.
Shareholders didn't like what they heard. The day after the announcement, Transmeta shares plunged more than 50 percent, to below $6.
The stock got a brief rise on Monday, when Transmeta said it would introduce a new line of Crusoe microprocessors that consume up to 20 percent less power and perform up to 50 percent better than previous versions.
Transmeta said the new chips, called Crusoe TM5800 and TM5500, are immediately available in speeds ranging from 600 MHz to 766 MHz. A 1GHz chip is expected to be available during the first half of 2002.
The announcements regarding the new chips, however, didn't prompt a sustained rally for Transmeta stock, currently trading for about $5.35 a share.
The lawyers also noted in their suit that the stock is way down from May, when the six-month post-IPO waiting period -- during which insiders are barred from selling stock -- came to a close.
During the month of May, five executives and directors sold $10.5 million worth of stock for between $12.10 and $14.42 a share, the suit said.
Although that's well below the $50.87 price tag the stock boasted at its peak in November, it's quite a bit more than anyone is getting today.
