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Transmeta (NASD:TMTA), the semiconductor and software-based microprocessor company, posted breathtaking revenue gains for the quarter ending March 31. Revenue increased 185% over last year to $19.5 million. Gross margins rose from 28.3% to 43.4% and the company's operating loss improve from a deficit of $21.2 million to $2.1 million. Of the revenue, $9.1 million had been deferred from a contract with Microsoft (NASD:MSFT) and was recognized this quarter.

You would think all of this was good news, but apparently not good enough. Largely because of lower than expected business from Sony (NYSE:SNE), guidance for the next quarter and the rest of the year was abysmal. The first half will be about $27 million in revenue, not much given what was already announced for Q1 and $48 to $58 million for the full year. At the low end, that is only about $28 million for the next three quarters.

Transmeta has transformed itself from a company that sells products to a company that offers engineering services. It looks now like that model may not scale. Over the last three years, the company's revenue has grown rapidly from $17.3 million in 2003 to $72.7 million in 2005 according to Yahoo!Finance. Operating losses have come down and dropped to $7.1 million last year.

But, model changes do not always work. Reuters says that Transmeta's previous guidance, which was issued on February 28, was $60 million to $72 million. So, the new forecast is quite a downer.

Transmeta's stock fell over 30% today to $1.58 on a 52-week high/low of $2.50/$.58. But it should probably be lower. The company trades at over six times revenues. And, with revenue and guidance dropping this quickly, that's too high a premium.

TMTA 1-yr chart:

Douglas A. McIntyre is the former Editor-in-Chief and Publisher of Financial World Magazine. He is also the former president of Switchboard.com, which was the 10th most visited site in the world at the time, according to MediaMetrix. He has been chief executive of FutureSource LLC and On2 Technologies, Inc. and has served on the boards of TheStreet.com and Edgar Online. He does not own securities in companies he writes about. He can be reached at douglasamcintyre@gmail.com.

Source: Transmeta Takes A Torpedo In The Boiler Room (TMTA)