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Transmeta will cease production of all but a few of its low-power processors, shifting its focus to building new businesses around engineering services and intellectual-property licensing, the company announced Thursday.

A new leader will oversee Transmeta's metamorphosis. Arthur Swift, previously vice president of marketing for the Santa Clara, California, company, was named president and chief executive officer. Matthew Perry, the former chief executive, has left the company, Swift said.

As one of the few competitors to Intel's dominance of the microprocessor industry, Transmeta lost $650 million over the last five years trying to get its low-power notebook chips into the mass market. The company unveiled its unique software-based approach to instruction processing in 2000 amid the trappings of a classic dot-com-era company launch but never managed to translate the high expectations for its chips into profits.

Transmeta has stopped production of its original Crusoe processor as well as of the 130-nanometer version of the second-generation Efficeon processor, Swift said. The company will continue to fulfill orders for 90-nanometer Efficeon processors through its manufacturing partner Fujitsu, but those chips will be sold under new terms and conditions and in some cases will have significantly higher prices, he said.

Transmeta in the PlayStation 3

Sony and Sony Computer Entertainment announced Thursday that about 100 Transmeta engineers will work with the companies on integrating Transmeta's LongRun2 power-saving technology into future products. Sony will pay "market rates" for the services of those engineers, who will help Sony produce derivatives of its Cell processor, Swift said. Cell is a multicore processor designed for Sony's upcoming PlayStation 3 gaming console, and development partners IBM and Toshiba are also expected to seek out other applications for the chip.

Transmeta will continue to seek license partners for its intellectual property, Swift said. It has already signed licensing deals with Fujitsu, NEC Electronics, and Sony for LongRun2, which helps chip designers control power leakage in advanced processors.

As a result of this new business model, Transmeta was forced to lay off 67 employees, Swift said. This reduced its total headcount to 208 employees worldwide as of Thursday, he said. Most of the layoffs were felt by the sales, marketing, and manufacturing departments.

Several questions remain, including whether Transmeta will continue to enhance the Efficeon processor and whether the company's software-based instruction processing design is up for license, said Kevin Krewell, editor in chief of the Microprocessor Report. But the outcome could have been much worse for Transmeta's employees, as Sony's participation will keep dozens of engineers out of the flat Silicon Valley job market, he said.