Two start-ups that hoped to popularise skinny, energy-efficient servers using Transmeta Crusoe processors are throwing in the towel.

FiberCycle, which hoped to market ultradense ‘blade’ servers with Crusoe chips, is in the process of winding down operations, CEO Spero Koulouras said. The size of the staff has dropped from 33 to about 10.

“FiberCycle will go away,” he said. “The technology and remainder of the team will go into something new.”

Meanwhile, Rebel.com, which marketed the NetWinder 3100 server appliance, has effectively gone out of business. The Ottawa-based company went into receivership in July, according to several sources. Zentra bought Rebel.com’s enterprise server division this month, but not the NetWinder product line, according to Zentra representatives. Rebel.com representatives could not be reached for comment, and the company’s website is unavailable at this time.

The demise of the two companies reflects both the dire straits of the technology market and the notorious difficulty of trying to break into the hardware industry. Both companies pinned their dreams on a similar concept: that rising prices for energy and office space would drive demand for small, dense servers that used less power than standard Intel machines.

Transmeta chips consume less energy than standard Intel server chips, according to proponents. By being more energy efficient, more servers also can be crammed into a finite space. Blade servers further maximise space by eliminating redundant cables and computer chassis.

But soon after FiberCycle and Rebel.com aired their business plans in the early part of this year, Compaq Computer, HP and IBM touted upcoming blade server projects. Intel also announced an effort to produce energy-efficient components for the market, denting the appeal of Transmeta-based boxes. Demand, already weak at the time, continued to plummet.

“Entering the server business per se is a tough thing to do without deep pockets,” Koulouras said. “The market softened at a point in time where we weren’t able to get further funding.”