Crusoe's ripple effect on Psion, ARM, others

With the high-profile launch of Transmeta's new microprocessor Crusoe, aimed at portable devices, chipmakers such as Intel, Advanced Micro Devices and Cyrix aren't the only companies who could be affected. Some industry observers reckon handheld device makers Psion (quote: PON) and Palm Computing, not to mention embedded-processor developers ARM Holdings (quote: ARM) and others, may also need to rethink their strategies.

At first glance, the markets seem to agree with the doom-sayers. Shares in Psion and ARM both dropped when the Crusoe was launched Thursday, with the handheld computer maker down 229 to 3,022p on the London exchange and the chipmaker off 37 to 3,260p. (ARM also dropped sharply Wednesday.)

So what's all the ruckus about?

It's fairly clear that Crusoe will compete with Intel's mobile chips for lightweight laptop computers, though no one's predicting the dominant chip company's downfall just yet. But what about companies such as Psion and ARM?

Transmeta is aiming its lower-speed chip, the 400MHz TM3120, at mobile computing devices and set-top Internet boxes for television, a direct encroachment on ARM's territory -- or at least, that's how investors are seeing it.

But observers note that Crusoe isn't appropriate for the kinds of devices ARM specialises in -- not yet anyway. The new chip couldn't run a watch or a mobile phone, for example; it's initially being targeted at the unproven market for tablet computers -- such as that announced by Diamond Thursday. "If you look at where ARM is, they're largely strong in the cell phone market, and [Crusoe] is not going to change that," said analyst Joe Byrne with Dataquest.

In the case of PDA makers like Psion and 3Com, which owns Palm Computing, maker of the Palm line of handhelds, the notion is that Crusoe will bring near-desktop PC capabilities to the handheld market, drawing interest away from products with more modest capabilities. "This is not too farfetched," said Byrne. "Some of [Transmeta's] graphics showed a Psion-like device... they could essentially bring Windows or Linux into the handheld computer market, and that would bring competition to Psion... It would allow a PDA to run software originally written for a PC, like Netscape or plug-ins."

But Psion strongly denies that the Crusoe chip is a threat at all, pointing out that the market for a Windows or Linux device is very different from the handheld niche. "I can't see any impact on Psion at all," said a spokesman. "Windows 95 is not appropriate for [the handheld market]... And what's more, having more embedded processors would offer us a wider variety of choice. We're tremendously happy with ARM [processors] right now."

He blamed the company's stock decline on profit-taking after the company hit a record high of 3,400p last week.

Analyst Byrne argued greater processor power in a portable device is not necessarily the same thing as greater usefulness. "Look at Palm, which is based on very simple hardware, and a very simple set of features people really need," he said. "Competitors that have used more complex hardware haven't been as successful."

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