The company said it is looking to exchange "fewer than 300" notebooks containing the faulty chips after it was revealed the notebooks in question may fail if users try to reinstall operating software.
Transmeta shares took a battering on the news, tumbling by 15% to close at $23.81 on the Nasdaq yesterday. After-hours trading continued the slide, with the company estimated to have lost 25% of its value on the day's trading.
The company played down the severity of the problem, saying the faulty chips came from a limited manufacturing batch and any remaining inventory of the faulty chips had been returned to them.
"Transmeta stands behind the Crusoe and will continue to work with its customers to insure Crusoe's quality and reliability," the company said in a statement. It said it remains confident that it will sign a deal to supply the chips to a major US laptop manufacturer next year.