Transmeta's current chips aren't selling as well as expected, but the upstart is still moving ahead on future processors. The Santa Clara, California-based company announced late Thursday a deal to license chip technology from tech giant Seiko Epson. A patent swap between the two companies will grant Transmeta access to technology that it can use to develop processors and chipsets with improved energy-efficiency for notebook PCs and Internet appliances. Meanwhile, sources said that Transmeta will soon announce that Taiwan Semiconductor Manufacturing is manufacturing its upcoming Crusoe TM 5800. The chip, which will be officially unveiled this week at the TechX NY trade show, will run at up to 800MHz and will be based on a 0.13-micron manufacturing process. Such an announcement has been expected since February, when Transmeta signed a manufacturing agreement with TSMC, Taiwan's largest contract manufacturer for chips. The deal will not only increase the manufacturing capacity for Transmeta's chips, but will also give the company access to TSMC's next-generation 0.13-micron process, which creates faster and cooler-running chips by using a finer width of wiring. Until now, Transmeta has relied solely on IBM Microelectronics to manufacture its chips. Transmeta chief executive Mark Allen let slip during a conference call Thursday with financial analysts that TSMC will be Transmeta's only manufacturer for the Crusoe TM 5800. The conference call was actually held to discuss the company's earnings warning, but Allen inadvertently commented on the TSMC deal. In its earnings warning issued Wednesday, Transmeta said second-quarter revenue will be down 40 percent to 45 percent from the first quarter due to economic weakness in Japan -- the primary market for the company's chips. But the new Crusoe TM 5800 chip could give the company a shot in the arm. With the move to TSMC, Transmeta will move beyond IBM -- but not leave it behind completely. IBM will continue to manufacture Transmeta's current TM 5600 processor, which reaches 667MHz. The move away from IBM, however, could potentially expose Transmeta to legal action from chip giant Intel. Transmeta's processors use code-morphing software to run programs written for Intel's x86 instruction set. IBM holds an x86 license from Intel. TSMC does not have an "announced license", Intel spokesman Chuck Mulloy said Friday. He would not elaborate. When asked if Intel might consider litigation, Mulloy said, "We never comment on our legal strategy." See Chips Central for the latest on processors and the semiconductor industry. Have your say instantly, and see what others have said. Click on the TalkBack button and go to the Chips Central forum Let the editors know what you think in the Mailroom. And read other letters.