Electronics IP Industry – A November 2009 Update


Electronics IP Industry – A November 2009 Update

by Dr. Russ Henke and Dr. Jack Horgan
Henke Associates

In their previous twenty-five (25) quarterly issues of the Electronics IP Industry Commentaries, the authors examined the recent financial histories and future outlooks of the remarkable phenomenon of Electronics Intellectual Property (IP) providers, a niche that has emerged in its own right to claim a substantial amount of revenue in the world of Electronics Design Automation.

We had arbitrarily selected eight (8) publicly-traded companies originally (then called the "Group-of-8" or "G8"), as representative of the then-current financial state of the Electronics IP industry. At the end of 2004, ARM completed its acquisition of Artisan Components, Inc., thereby reducing our "G8" to "G7". In August 2009 Mentor Graphics completed its acquisition of LogicVision, thereby reducing our “G7” to “G6”. Accordingly, in this November 2009 Commentary, we look at the financial performances of the "G6" Electronics IP vendors for the third quarter of 2009.

Group-of-6 ("G6"):

For the “G6” companies above, we assume that all of their revenues are Electronics IP sales and directly related IP services.

News Highlights:

On October 2, 2009 the Semiconductor Industry Association (SIA) reported that worldwide sales of semiconductors in August were $19.1 billion, an increase of 5% from July 2009 when sales were $18.2 billion. Sales declined 16.1% from August 2008, when sales were $22.7 billion. August 2009 sales were up sequentially in all geographic regions. Year-to-date sales through August 2009 are down 21.3% to $133.8 billion from $170.1 billion at this time last year. The rate of decline has slowed slightly from the first six months of 2009, during which sales declined by 25% year-on-year. All monthly sales numbers represent a three-month moving average of global semiconductor sales. See Table 1. Table 1.

SIA President George Scalise said, “Continuing recovery of consumer spending led the sixth-consecutive month of sequential growth in semiconductor sales. Various incentive programs for energy-efficient products, ranging from automobiles to home appliances, have bolstered demand for semiconductors, which deliver critical enabling technology for reducing energy consumption.”

iSuppli has forecast that global semiconductor revenue is set to contract by 16.5% in 2009. This follows a 5.4% decrease in 2008. However at the end of October 2009, iSuppli predicted that revenue is expected to rise by 10.6% in the fourth quarter of 2009 compared to the same period in 2008. If achieved, the fourth quarter will mark the first quarter in 2009 that revenue has risen compared to the same period a year earlier. See Figure 1.

Dale Ford, senior vice president, market intelligence, for iSuppli, said, “The seeds of the current recovery were sown in the second quarter. During that period, manufacturers began to report positive book-to-bill ratios, indicating future revenue growth. This was followed by another sequential increase in revenue in the third quarter. Meanwhile, semiconductor inventories returned to more normal levels in the third quarter after chip suppliers shed stockpiles. They did this by slashing costs dramatically in order to reduce unsold inventory they’d been carrying since the beginning of 2009.”

On October 21, 2009, ARM announced at ARM TechCon 3, held in Santa Clara, CA, the launch of the ARM® Mali™ Developer Center - a suite of resources for graphics and embedded applications developers working with the Khronos OpenGL ES 1.1 and 2.0, OpenVG 1.0 and 1.1, as well as other APIs. Accessing these resources as members of the Mali ecosystem will enable developers targeting Mali graphics processing unit (GPU) platforms to bring best-in-class content to market.

On November 2, 2009 MIPS Technologies introduced a new core family providing the highest levels of system performance for extremely cost-sensitive embedded applications such as 32-bit microcontrollers (MCUs), home entertainment, personal entertainment and home networking. The new MIPS32 M14KTM and M14KcTM cores are the first MIPS32-compatible cores that also execute the new microMIPS instruction set architecture (ISA), achieving high performance of
1.5 DMIPS/MHz with an advanced level of code compression. The microMIPS ISA is said to maintain 98% of MIPS32 performance while reducing code size by 35%, translating to significant silicon cost savings.

On November 2, 2009 MoSys announced the availability of its PCI Express 2.0 PHY. MoSys' PHY complies with the PIPE 2.0 specification and provides the physical layer (PHY) interface that connects to industry standard PCI Express 2.0 controllers.

On October 21, 2009 Rambus Inc. announced it had achieved a new breakthrough level of power efficiency with its latest silicon test vehicle developed through its Mobile Memory Initiative (MMI). The latest silicon-validated results demonstrate that through the use of MMI innovations, a high-bandwidth mobile memory controller can achieve what is said to be a world-leading power efficiency of 2.2mW/Gbps. This is nearly a one third improvement over the initial MMI silicon and significantly better than the estimated 10mW/Gbps of an LPDDR2 400 memory controller.

On August 18, 2009 Virage Logic announced its intent to acquire publicly held ARC International plc, a provider of consumer IP to OEM and semiconductor companies globally. The proposed all-cash transaction values ARC at 16.25 pence per share, or an equity value of approximately £25.2 million ($41.0 million) on a fully-diluted basis. On September 15, 2009 Virage Logic announced that with 84.68% of the ARC shares already tendered into the offer, it will proceed to consummate the purchase of this ownership interest in ARC and will have ARC immediately apply to the UK Listing Authority and the London Stock Exchange for the delisting of ARC's shares.

How did the Electronics IP G6 perform in the Third Quarter of 2009?

On the IP revenue front, Table 2 below reveals that the G6's combined Q3 revenue performance was $192 million, down almost 10% from the $213 million in the third quarter of 2008, but up 14% sequentially from the $168 million in the second quarter of 2009. All IP Providers suffered revenue declines measured in dollars year-over-year. MIPS endured the largest revenue decline at -23%. MoSys and Virage Logic reported percentage drops in the mid teens. The others had single digits declines. On a sequential quarterly basis all firms enjoyed revenue increases. MoSys was way out in front with a 70% increase. ARM and MIPS saw increases around 17%. Virage Logic was the only other IP Provider to exceed 10% growth.

Figure 2 below provides a bar graph of each vendor's revenue for Q3 2008, Q2 2009, and Q3 2009 in sequence.

ARM continues to dominate with 63% of total revenue with Rambus a distant second at 15% relative market share. MIPS was in third place at 8% with Virage Logic close behind at 7%.

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