Updated from 2:52 p.m. ET

Improbably enough, despite last week's scuttling of a major production deal with its biggest partner, upstart semiconductor manufacturer

Transmeta

is set to unleash one of the hottest initial public offerings of the year on Tuesday.

Transmeta, which counts George Soros and

Microsoft

(MSFT) - Get Report

co-founder Paul Allen among its investors, designs chips for laptops and other mobile devices such as e-books, handheld computers and cell phones. Its flagship product is the

Crusoe

processor, which uses a software-based technology called "code morphing" that consumes less power and promises to prolong the battery life of a device well beyond the usual two hours.

But a chill went through the beaten-down initial public offering market last week, when

IBM

(IBM) - Get Report

nixed a plan to start using the Crusoe in its ThinkPad 240 line of laptop computers later this year.

Transmeta is undaunted. It first increased the price range to $16-$18 from $11-$13, jacking up the amount raised by the issuance of 13 million shares to as much as $234 million from $169 million. And Monday evening the offering was priced at $21 a share, a sign of the intense demand for the stock.

The unfortunately timed IBM news "begs the question of 'Why?'" says Jeremy Lopez, a semiconductor analyst at

Morningstar

. (Morningstar's analysts don't rate stocks and the firm doesn't participate in underwriting.) Indeed, IBM's decision doesn't throw a particularly good light on the technology. Because IBM manufactures the Crusoe for Transmeta, many are fearing that Big Blue might know something about whether the chip's performance and battery length live up to its hype. Lopez also muses that IBM may not have wanted to take a chance on using Transmeta chips and forfeiting favorable bulk rates with industry leader

Intel

(INTC) - Get Report

.

IBM declined to comment on whether its relationship with Intel played a role in its decision. An IBM spokesman noted that the company would continue to look at the possibility of including Transmeta chips in future ThinkPads.

"This was one specific laptop, not a whole line," says Randall Roth, a senior analyst with

Renaissance Capital

, which runs the

IPO Plus Aftermarket

fund. "And it's not as if they lost all of IBM

as a customer." Together, IBM and Japan's

Toshiba

(TOSBF: OTC BB) accounted for the majority of Transmeta's $5.1 million in revenue in 1999.

Meanwhile, Transmeta has the broader semiconductor market working in its favor. Total semiconductor sales are slated to grow 37% this year to $205 billion and to reach $319 billion by 2003, according to Roth. Transmeta's focus on the market for thin notebook computers and Internet appliances should insulate it from mainstream fears that slowing growth in the desktop PC market may crimp microprocessor sales at companies like Intel and

Advanced Micro Devices

(AMD) - Get Report

.

"This is not a small niche market," Roth adds. "Computing is becoming more pervasive, and mobile devices are the key to pervasive computing."

Gateway

(GTW)

has confirmed that it still plans to use Transmeta's processor for the Internet appliance it's developing with

America Online

(AOL)

. Gateway also will use Transmeta's

Mobile Linux

operating system for the Internet appliances.

As for Intel, it maintains that it doesn't see itself as a competitor to Transmeta. But the company boasts that its Pentium chips, with Speedstep technology, address the notebook market's needs well. Intel currently has a mobile Pentium III that uses something close to a single watt of power. And Intel will start shipping a 600 megahertz Pentium III, which operates at a quarter watt, in the early part of next year.

Roth posits that Transmeta has a two- to five-year head start over its competitors. "It's only a two-year head start, if Intel jumps in and throws its muscle behind it," Roth says. "Lots of people have tried to take on Intel and lots have failed. Intel is not going to sit around, and it has a huge R&D (research and development) budget."

Even so, the promise of Transmeta's technology is likely to ensure a positive reception when the stock starts trading Tuesday, especially at a time when the IPO market is seeking direction and desperately needs a jump-start.