Commentary: Electronics IP Industry - A February 2007 Update
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Commentary: Electronics IP Industry - A February 2007 Update

Commentary:

Electronics IP Industry - A February 2007 Update

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



In their September 2003, December 2003, February 2004, May 2004, August 2004, November 2004, February 2005, May 2005, August 2005, November 2005, February 2006, May 2006, August 2006 and November 2006 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 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”. Accordingly, in this February 2007 IP Industry Commentary, we look at the financial performances of the “G7” Electronics IP vendors during the fourth quarter of 2006.

Group-of-7 ("G7"):

ARM Holdings plc
Ceva, Inc.
LogicVision, Inc.
MIPS Technologies, Inc.
MoSys
Rambus Inc.
Virage Logic Corporation
Cambridge, UK
San Jose, CA
San Jose, CA
Mountain View, CA
Sunnyvale, CA
Los Altos, CA
Fremont, CA


For the “G7” companies above, we assume that all of their revenues are Electronics IP sales and directly related IP services.



Recent "Electronics IP" News Highlights

According to Peggy Aycinena in an article that appeared in the Sunday EDAcafe Weekly published on February 12, 2007, IP was front at center last month at DesignCon in Santa Clara, showcased in no less than 5 different panels that discussed numerous topics including: how to select IP, how to encrypt IP, how to verify IP, the current state of the art with respect to analog/mixed-signal IP, and the business impact of IP quality on market growth for the industry. If you missed Peggy's article, go to:
http://www10.edacafe.com/nbc/articles/view_weekly.php?articleid=351005&page_no=1


At the end of January 2007, both IBM and Intel separately announced a new technology called “high-k metal gate” that will dramatically reduce transistor-gate leakage current, a major obstacle in moving to new processor nodes.

Gordon Moore, Intel co-founder, said in a statement, "The implementation of high-k and metal materials marks the biggest change in transistor technology since the introduction of polysilicon gate MOS transistors in the late 1960s.” Intel believes it has a lead of more than a year over the rest of the semiconductor industry with the first working 45nm processor of its next-generation family of products. Intel has replaced silicon dioxide with a thicker hafnium-based high-k material in the gate dielectric. Intel has also developed new metal gate materials.

IBM has been working with partners AMD, Sony and Toshiba. IBM has inserted the technology into its manufacturing line in East Fishkill, NY and will apply it to products with chip circuits starting in 2008. The creation this transistor component with the new material was accomplished without requiring major tooling or process changes in manufacturing.

In a separate announcement, Intel said it has built a better microprocessor using "superchips” that can boost video, graphics of personal computers. To read the entire article by Tom Abate of the Chronicle (February 12, 2007), click on:
http://www.sfgate.com/cgi-bin/article.cgi?file=/c/a/2007/02/12/MNGT0O34OG1.DTL&type=tech


On February 2, 2007 the Semiconductor Industry Association (SIA) reported that worldwide sales of semiconductors totaled $247.7 billion in 2006, up over 8.9% from the $227.5 billion in 2005. Worldwide sales in the fourth quarter were $65.2 billion, an increase of 9% over fourth quarter sales in 2005 of $59.9 billion and an increase of 1.9% over the third quarter 2006 sales of $64 billion. SIA's Global Sales Report (GSR), a three-month moving average of sales activity, is shown in the following Table 1.


SIA President George Scalise said, "2006 was the 'Year of the Consumer' in the electronics industry. Sales growth was largely driven by popular consumer products such as cell phones, MP3 players, and HDTV sets - all products that have proliferated as semiconductor technology has enabled dramatically lower costs coupled with improved functionality.” The press release noted that in 2006, cell phone shipments exceeded one billion units, more than 34 million MP3 players were sold, about 235 million PCs shipped, and US sales of HDTV units more than doubled. SIA forecasts 10% growth to $273.8 billion in worldwide sales in 2007.

On December 28, 2006 EVE, Inc. announced that it has acquired Tharas Systems, Inc., a provider of hardware accelerator solutions (Hammer) for complex chip verification. This will complement EVE's hardware emulation offering for verification. EVE is based in Palaiseau, France with US headquarters in San Jose, CA. Tharas was based in San Jose. Most of Tharas 20 employees are now EVE employees. Terms of the deal were not announced.

How did the "Electronics IP” G7 perform in the Fourth Quarter of 2006?

On the revenue front, Table 2 below reveals that the G7's combined Q4 2006 performance was $230 million, a healthy increase of 19% from the $193 million in Q3 2005 and a more modest 6.6% increase from the $216 million in the just-previous quarter. On a year-over-year basis, MoSys was the clear percentage growth leader with 109% growth. Rambus and MIPS had strong year-over-year gains of 28% and 24%, respectively. Virage Logic was the only revenue decliner at -16%. On a sequential basis, MoSys was the again the revenue percentage growth leader at 24%. Rambus was the only other IP vendor with more than 10% growth. Virage Logic was the only sequential decliner at -23%.


Figure 1 below provides a bar graph of each vendor's revenue for Q4 2005, Q3 2006, and Q4 2006 in sequence. ARM continues to dominate the G7 with 57% share. Rambus is a strong second at 22%. MIPS was a distant third at 9%.


Turning to earnings for the fourth quarter, we note that Rambus and MIPS did not report earnings for the second consecutive quarter. The remaining five firms (as shown in Table 3 below) had combined earnings of $23 million. This is over a 9% rise from the $21 million for those five firms in the same quarter of 2005 and a 46% rise compared to $15.8 million in the just-previous quarter for those five firms. Not surprisingly, ARM dominates these figures. ARM's earnings grew nearly 3% year-over-year and 32% sequentially.



Q4 2006 Results of Individual Electronics IP Providers:
On February 6, 2007 ARM Holdings plc announced the results for its fourth quarter, and the year, the periods ended December 31, 2006. Total revenue for the quarter was $130.3 million, up 20% versus Q4 2005 and up 8% sequentially. Sterling revenues of £68.0 million were up only 8% year-on-year, after an 11% weakening of the dollar against sterling ($1.92 in Q4 2006 compared to $1.73 in Q4 2005). At the Q4 2005 effective rate, Q4 2006 sterling revenues would have been £75.2 million.

Total dollar license revenues in Q4 2006 grew by 26% to $55.5 million, representing 43% of group revenues, compared to $44.1 million in Q4 2005. License revenues comprised $37.4 million from the Processor Division (PD) and $18.1 million from the Physical IP division (PIPD), representing the highest ever quarterly licensing revenue for that division. Total dollar royalty revenues in Q4 2006 grew by 19% to $52.4 million, representing 40% of group revenues, compared to $44.2 million in Q4 2005. Royalty revenues comprised $42.8 million from PD and $9.6 million from PIPD. Total PIPD royalties of $9.6 million included $0.7 million of catch-up royalties. PIPD underlying royalty revenues were up 39% in Q4 2006 compared to Q4 2005. For PD total Q3 shipments of 700 million units (ARM partners report royalties one quarter in arrears) equate to 7.6 million units being shipped every day!


The Processor Division (PD), formerly the original ARM, had revenues of $80.2 million, an increase of 20.6% compared to the same period last year and a 6.5% increase compared to the prior quarter. ARM partners shipped 621 million units in Q2 2006, up 53% on the comparable period last year and up 12% sequentially. The Physical IP division (PIPD), the Artisan division established after the acquisition at the end of 2004, had revenues of $27.7 million, an increase of 27% year-over-year and an increase of 8% sequentially.

Net income for the quarter was $23 million, up 2.6% year-over-year and up 33% sequentially.

Warren East, Chief Executive Officer, said, "2006 was another year of consistent execution and significant investment in our business, and we are encouraged to have grown revenues ahead of our targets. We go into 2007 in good shape, with a strong portfolio of products and a record level of order backlog. Last year the number of ARM® technology-based electronic products shipped grew by 47% to more than 2.4 billion."

On February 12, 2007 AMR announced that the five billionth ARM Powered processor was shipped to the mobile device market.

On January 25, 2007 CEVA, Inc. reported financial results for the fourth and for the year, the period ended December 31, 2006. Total revenue for the fourth quarter of 2006 was $8.1 million, an increase of 5% compared to $7.7 million in the fourth quarter of 2005. This $8.1 million was within the range given as guidance last quarter. Licensing revenue for the fourth quarter of 2006 was $5.3 million, an increase of 15% compared to $4.6 million for the fourth quarter of 2005, and a 3.3% decrease from the prior quarter. This was 65% of total revenue. Royalty revenue for the quarter of 2006 was $1.7 million, a decrease of 15% compared to $2 million for the fourth quarter of 2006, but flat compared to the prior quarter. This was 21% of total revenue. Revenue from services was $1.1 million, a decrease of 2.2% compared to $1.2 million for the third quarter of 2005, and a 13.5% decrease sequentially. Service revenue was 14% of total revenue.

During the quarter, the Company signed a record twelve new license agreements. Three of these were with firms in the US, 2 in Europe and 7 in Asia Pacific region. Eight were for CEVA DSP cores and platforms, one for CEVA SATA technology and three for CEVA Bluetooth technology.

Net income for the fourth quarter of 2006 was $579K, compared to net loss of $147K million in the fourth quarter of 2005 and a net gain of $376K in the previous quarter.

Yaniv Arieli, Chief Financial Officer of CEVA, stated, "At the beginning of 2006, we targeted a number of financial goals for the Company, namely to reduce the Company's operating expenses and return the Company to operational profitability. We have managed to achieve both of these goals without impacting our research and development activity and have put in place a structure to enable us to achieve the goal of sustained profitability. During the year, we generated positive cash flow of $2.6 million and as of December 31st, CEVA's cash balances and marketable securities were $64.2 million compared to $61.6 million at the end of 2005.”

On January 31, 2007 CEVA announced that CEVA IP was shipped in over 190 million customer chipsets in 2006, representing a 45% increase on 131 million units shipped in 2005. Since the inception of CEVA's first DSP core in 1991, CEVA's technology has shipped in more than 1 billion chipsets worldwide, spanning a broad range of applications.
On January 30, 2007 LogicVision, Inc reported financial results for the fourth quarter and the year, the period ended December 31, 2006. Total revenue for the quarter was $2.7 million, which was towards the low end of the guidance given last quarter. This was an 11% increase from the $2.47 million in the same quarter a year earlier and essentially flat compared to the just prior quarter. License revenue was $1.1 million, accounting for 41% of total revenue. This was a 13% decrease year-over-year and a 15% decrease sequentially. Service revenue was $1.5 million, accounting for 56% of total revenue. This was a 34% increase year-over-year and a 17.5% increase sequentially. Product revenue made up the remainder. New orders in the quarter totaled $1.5 million, compared to $3.8 million in the last quarter. The firm exited the quarter with a 12-month backlog of $9.4 million.

Net loss for the quarter was $1.4 million, compared to net losses of $7.1 million and $1.7 in the prior year and prior quarter, respectively.

On December 20, 2006, the company announced that it has completed a private placement of approximately 4,000,000 shares of its common stock, resulting in gross proceeds to the company of approximately $3.2 million. The common stock sold in the private placement was purchased primarily by a group of three institutional investors -- MicroCapital Funds, Special Situations Funds and Pacific Asset Partners.

James Healy, LogicVision president and CEO, said, "In the fourth quarter we reduced headcount from 76 to 59 people and we began steps to further change our cost structure in Japan while enhancing our ability to serve our customers. We took these steps as we recognize that our near-term cash position would suffer until we resume our expected order rate during early 2007.”
On January 24, 2007 MIPS Technologies, Inc. reported the financial results for its second quarter of fiscal 2007, the period ended December 31, 2006. Total revenue for the quarter was $20.8 million, a 28% increase from the $16.3 million in the same quarter a year earlier, and a 5.6% increase from the $19.7 million in the previous quarter. This was in the middle of the range of the guidance given a quarter earlier. Royalty revenues were $11.2 million, accounting for 54% of total revenue. This was a 26% increase year-over-year and essentially flat sequentially. Contract revenue was $9.6 million, accounting for 46% of total revenue. This was a year-over-year increase of 30%, and a 13% increase sequentially.

In the quarter MIPS added 9 new licenses and 7 new customers, to bring the totals to 117 licensees and 200 license agreements. There are 40 companies contributing to royalties.

As previously announced, MIPS formed a special committee of independent members of its Board of Directors to review the Company's historical stock option grant practices and the Company's accounting for its option grants. Due to the continuing internal investigation, MIPS did not release second quarter fiscal 2007 earnings at this time. MIPS did not release its earnings in the just-previous quarter either.

On February 5, 2007, MIPS reported that the NASDAQ Listing Qualifications Panel had granted the company's request for continued listing, subject to the condition that the company files its Form 10-K for the fiscal year-ended June 30, 2006 and all required restatements by March 19, 2007. MIPS must also file its Form 10-Q for the quarter-ended September 30, 2006, and any required restatements, by March 26, 2007.

On February 16, 2007, MIPS announced that the company is in receipt of a NASDAQ Additional Staff Determination letter dated February 15, 2007, advising the company that it is not in compliance with the filing requirements for continued listing as set forth in Marketplace Rule 4310(c)(14).

John Bourgoin, MIPS president and CEO, said, "We reported the highest total quarterly revenue in almost six years, driven by our strong licensing performance. We signed nine new license agreements and added new customers in the quarter, with a strong presence worldwide, especially in Asia.”
On February 12, 2007 MoSys announced its financial results for the fourth quarter and the year, the periods ended December 31, 2006. Total net revenue for the fourth quarter of 2006 was $5.0 million, compared to $4.0 million in the third quarter of 2006 and $2.4 million in the fourth quarter of 2005. Fourth quarter '06 total revenue represented a sequential increase of 24% over the previous quarter and 109% compared to the fourth quarter of 2005. Note that Wii royalties from Nintendo are being paid in the quarter that units are shipped, rather than being paid one quarter in arrears as is the norm.

Licensing revenue for the quarter was $1.8 million, compared to $3.3 million in the previous quarter and $1.3 million in the fourth quarter of 2005. Royalty revenue increased significantly to $3.2 million, which included royalty revenue related to the Nintendo Wii game console for the fourth quarter. These results compare to $705K of royalty revenues in the previous quarter and $1.1 million in the fourth quarter of 2005. Licensing accounted for 36% of total revenue and royalty for 64%. The Company recorded licensing revenue from 12 different chip development projects, compared to 13 in the previous quarter, and royalty revenue from 16 different licensees, compared to 15 in the third quarter of 2006.

Commenting on the quarter, Chet Silvestri, CEO of MoSys stated, "The fourth quarter was marked by significant strength in our royalty revenues due to the widely successful release of the Nintendo Wii(TM) game console. These results, combined with our reduction in operating expenses, allowed us to achieve solid profitability for the quarter.”
On January 24, 2007 Rambus Inc reported its revenue results for the fourth quarter and for the year, the periods ended December 31, 2006.

Revenue for the fourth quarter was $51.7 million, up 24% over the $41.6 million in the fourth quarter last year and up 13% from the $45.9 million in the previous quarter. This revenue was above the range given as guidance in the last quarter. This increase over the third quarter last year was driven by new product licensing revenues and patent licensing revenues from agreements announced earlier this year. Note that royalties from Intel cross licensing agreement ceased at the end of the second quarter.

Harold Hughes, president and chief executive officer at Rambus, said, "We achieved another record quarter and a record year with strong revenue growth. We also had operating performance and ended the year with a solid cash balance. Our recent license agreement with Qimonda reflects our continuing developing and delivering world-class architecture designs that are valued by our customers. Our XDR memory architecture is an advanced memory design that enables superior performance for many of today's computing and digital entertainment applications.”

Rambus has determined that it will not complete its financial restatement by the February deadline granted by NASDAQ listing qualification panel. This could cause Rambus stock to be de-listed from the stock exchange. On February 7, 2007, Rambus announced it will continue to be listed on NASDAQ pending a stay and review of an earlier decision. Rambus has been asked to make additional submissions by March 30, 2007.

On February 5, 2007, the Federal Trade Commission issued a ruling that requires Rambus to license its SDRAM and DDR SDRAM technology. The ruling sets maximum allowable royalty rates that Rambus can collect for the licensing, bars Rambus from collecting or attempting to collect more than the maximum allowable royalty rates from companies that may already have incorporated its DRAM technology, and requires Rambus to employ a Commission-approved compliance officer to ensure that Rambus' patents and patent applications are disclosed to industry standard-setting bodies in which it participates.

The decision goes back to charges that Rambus misled a standard making organization namely the Joint Electron Device Engineering Council (JEDEC) by failing to disclose that it was seeking patents related to certain technologies that would be adopted into standards.

On January 18, 2007, Rambus announced that Dr. Martin Scott had joined the firm as SVP Engineering replacing Samir Patel. Scott comes to Rambus from PMC-Sierra where he as VP and GM of the microprocessor products division.
On January 31, 2007 Virage Logic Corporation reported financial results for its fiscal first quarter of 2007, the period ended December 31, 2006. Total revenue in the quarter was $11.5 million, a 16% decrease from the $13.7 million in the same quarter a year earlier and a 23% drop from the $15.0 million in the prior quarter. This $11.5 million in revenue was well below the range given as guidance last quarter. License revenue was $8.4 million, accounting for 73% of total revenue. This was a 19% decrease year-over-year and a 25.5% decrease sequentially. Royalty revenue was $3.1 million, accounting for 27% of total revenue. This was a 6.4% decrease year-over-year and a 16% decrease sequentially.

Net loss for the quarter was $1.2 million, compared with net loss of $242K in the same quarter a year ago and compared to a net gain of $777 in the just prior quarter.

On January 4, 2007, the company announced that co-founder Adam Kablanian had resigned as president and CEO and will become chairman of the board. Dan McCranie, previously executive chairman, will become president and CEO. He had been VP of Sales & Marketing of Cypress Semiconductor until he retired in 2001. From 1986 to 1993 McCranie was president and CEO of SEEQ Technology.

On January 8, 2007, the company announced the appointment of Sherif Sweha as VP of Engineering. He was most recently at Intel as Director of NVM design engineering.

Dan McCranie, president and CEO, said, "Clearly, the results of the (last) quarter are not acceptable to our management team and we are reviewing all operational activities in order to make the necessary adjustments that will accelerate sales momentum. For the immediate future, I am assuming direct responsibility of the marketing and demand creation part of the organization and will be working closely with our staff to refocus our efforts on driving sales growth to the maximum extent possible. Our revenue miss for this first quarter was the result of two factors: Poor revenue turns bookings and an un-focused reduction in royalty revenue from Q4 fiscal 2006.”



Stock Market Prices of the G7 "Electronics IP” Providers

As shown in Tables 5 and 6 and Figure 2 below, the combined stock prices for the G7 increased in absolute terms 19.3% year-over-year and 13.4% sequentially. The average percentage change was up 20.7% year-over-year and up 12.7% sequentially. During the recent quarter, the major stock indexes increased 13.1% year-over-year and increased 6.6% over the prior quarter.



MoSys and MIPS were the year-over-year stock price growth leaders at 68% and 46%, respectively. ARM and Rambus also had solid growth at 18% and 17%, respectively. Virage Logic and LogicVision were the only decliners at -6% and -2%, respectively.

On a sequential basis, MoSys and MIPS were again the stock price growth leaders at 37% and 23%. ARM and CEVA had growth over 10%. Only LogicVision declined at -8%.




Forecast Guidance from Individual IP Providers

The collective guidance provided by the G7 IP vendors for the next quarter, is for revenue to grow 14% year-over-year and 2% sequentially. MIPS and MoSys are the most optimistic, with a projected percentage growth of around 30%. ARM is forecasting 15% growth in dollars. Virage Logic is most gloomy, with a forecast decline of nearly 26%. On a sequential basis, ARM is calling for no growth. Rambus and MIPS project the largest growth at 9% and 7.5%, respectively. MoSys is the most pessimistic, projecting a 10% decline.



Individual Company by Company Guidance

CEVA sees 2007 as a breakthrough year, due to higher projected royalties and margins. Revenue for the next quarter is expected to be in the range of $7.7 million to $8.4 million. This compares to revenue of $8.1 million in the quarter just reported and in the first quarter of 2006. Revenue for the 2007 is expected to be in the range of $34 million to $36 million. This compares to $32.5 million in 2006.

For guidance LogicVision expects revenue for the next quarter to be in the range of $2.6 million to $2.8 million. This compares to $2.7 million in the quarter just completed and to $2.3 million in the first quarter of 2006. The firm expects the net loss in the next quarter to be in the range of $1.0 million to $1.2 million, compared to a net loss of $1.4 million in the just reported quarter.

As guidance, MIPS expects revenue for the next quarter to be in the range $20.5 to $22.5 million, compared to $20 million in the quarter just completed, and to $16.4 million in the same quarter last year. This consists of projected royalty revenue in the range of $11 million to $12 million, and license revenue in the range $9.5 million to $10.5 million.

As guidance MoSys expects total revenue to be a range of $4 million to $5 million with royalty revenue of about $2 million. This compares to $5 million in the quarter just completed and $3.5 million in the first quarter of 2006. For the year, MoSys expects revenue to be in the range of $23 million and $27 million with more than $10 million coming from royalties. This will be due to design wins entering the production phase as well as Wii royalties. Revenue is expected to grow over 50% from the $14.9 million in 2005.

As guidance Rambus expects revenue in the next quarter to be between $48 million and $52 million. This compares to $45.9 million in the quarter just completed and to $41.6 in the same quarter last year.

Virage Logic anticipates total revenues next quarter of approximately $10.5 million to $12 million (the second fiscal quarter of 2007). License revenues are expected at $8 million to $9 million and royalty revenues are expected at $2.5 million to $3 million. This $10.5 million to $12 million forecast compares to $11.5 million actual revenue in the quarter just completed.



Financial Results for the last four quarters, the nominal calendar year 2006

Note that not all the IP vendors have the calendar year as their fiscal year. As shown in Table 8, the combined revenues of the G7 for the year were $869 million, up 18% from the $735 million in 2005. ARM accounted for 56% of the total. Rambus was a distant second at 22%. MIPS and Virage Logic were next at 8.7% and 6.6%, respectively.



For ARM full-year dollar revenues in 2006 amounted to $483.6 million, up 16% on 2005. Full-year license revenues were up 8%, comprising 12% growth in PD and 2% growth in PIPD. Order backlog in both PD and PIPD was approximately 20% higher at the end of 2006 than at the end of 2005.

Full-year dollar PD royalty revenues grew by 25% to $164.1 million on unit shipments of 2.449 billion, up 47% on 2005. Full-year PIPD royalty revenues grew by 26% to $34.9 million. Excluding catch-up royalties in both years, underlying PIPD royalties also grew by 26%.

Full-year Development Systems revenues were $53.0 million, up 14% on 2005. Service revenues were up by 10% to $29.1 million.

In 2006, ARM achieved a significant milestone with more than 2 billion ARM technology-based products being shipped in the year. Total shipments were 2.45 billion, up 47% year-on-year.

For the year AMR's net income was £45.2 million, up almost 8% compared to £41.9 million in 2005.

CEVA's total revenue for 2006 was $32.5 million, representing a decrease of 9% compared to $35.6 million reported in 2005. A total of thirty eight new license agreements were signed in 2006, compared to twenty seven agreements in 2005. Licensing revenue in 2006 was $22.2 million, representing a decrease of 7% compared to $23.9 million reported in 2005. 2006 royalty revenue was $6.3 million, representing a decrease of 7% compared to $6.8 million reported in 2005. Shipped units by licensees increased 45% to a record 190 million in 2006 compared to 131 million shipped in 2005. For 2006 the net loss was $98K, compared to net loss of $2.3 million in 2005.

For the fiscal year 2006, LogicVision reported revenues of $10.5 million, compared with revenues of $10.9 million in 2005, a 3.4% decline. License revenue was $5 million down 26% year-over-year. Service revenue was $5.3 million up 35% year-over-year. The net loss for 2006 was $7.1 million, compared with the 2005 net loss of $10.0 million.

For calendar 2006 MIPS had revenue of $76.3 million, a 54% increase over the $49.4 million for 2005. MIPS did not release earnings figures for the last two quarters, or for the year.

For the year 2006, MoSys had total revenue of $14.9 million compared to $12.3 million in fiscal 2005. Licensing revenue was $9.1 million up 18% year-over-year and accounting for 61% of total revenue. Royalty revenue was $5.8 million up 28% year-over-year. GAAP net loss in 2006 was $5.3 million which included a one time litigation settlement charge of $2.4 million and stock-based compensation charges of $2.7 million. This compares to a net loss of $3 million in 2005.

For the full year, Rambus revenue was $194.2 million, up 24% from the $157 million in 2005. These increases were primarily driven by new patent licensing revenues from agreements announced during fiscal 2006. Rambus has not released earnings for the last two quarters.

For calendar 2006 Virage Logic had revenues of $57.4 million, an increase of 12% from the $51.2 million in calendar 2005. Net loss for the year was $1.8 million compared to a net loss of $4.3 million in 2005.



Stock Prices for 2006

Over the course of 2006 the growth leaders in stock price were MoSys and MIPS, at 69% and 40%, respectively. ARM had reasonable growth at 15.5%. LogicVision and Virage Logic declined 6.2% and 7.6%, respectively.



Over the course of 2006 the three major stock indexes (Dow Jones, S&P and NASDAQ) rose 14.9%, 11.8% and 7.6% respectively.





Comments on the IP business of Cadence, Mentor Graphics and Synopsys:

The Top 3 EDA Vendors in overall annual revenue are also important players in the IP providers' niche. The difficulty in comparing the Top 3 EDA Vendors' IP business to one another is caused by the differences in how each company arbitrarily chooses to define the revenue components of its respective IP businesses. Further, none of the TOP 3 EDA Vendors unbundles profitability of its respective IP-related business lines, precluding IP earnings' comparisons.




EDA Consortium's Market Statistics
On January 17, 2007, the EDA Consortium's Market Statistics Service (MSS) announced that overall EDA industry revenue for Q3 of 2006 was $1,309 million, versus $1,122 million in the third quarter of 2005, an increase of 17%.

During Q3 2006, CAE accounted for 41% of the total revenue, IC Design and Verification for 27%, PCB and MCM for 8%, Semiconductor IP for 19% and Services for 6%.



Aart de Geus, chairman of the EDA Consortium and chairman and CEO of Synopsys, said, "Long-standing EDA categories are registering their strongest growth in at least five years. This is alongside our most recently expanded segment, semiconductor IP, which is currently growing a fast pace.”

The EDA Consortium is the international association of companies that provide tools and services that enable engineers to create the world's electronic products. EDA is the critical technology used to design electronics for the communications, computer, space technology, medical and industrial equipment and consumer electronics markets among others.







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About the Authors:

Since 1996, Dr. Russ Henke has been president of HENKE ASSOCIATES, a San Francisco Bay Area high-tech business & management consulting firm. The number of client companies for Henke Associates now numbers more than forty. During his corporate career, Henke operated sequentially on "both sides" of MCAD and EDA, as a user and as a vendor. He's a veteran corporate executive from Cincinnati Milacron, SDRC, Schlumberger Applicon, Gould Electronics, ATP, and Mentor Graphics. Henke is a Fellow of the Society of Manufacturing Engineers (SME) and served on the SME International Board of Directors. He is also a member of the IEEE and a Life Fellow of ASME International. In April 2006, Dr. Henke received the 2006 Lifetime Achievement Award from The CAD Society, presented by CAD Society president Jeff Rowe at COFES2006 in Scottsdale, AZ.

Since May 2003 the authors have now published a total of forty-nine (49) independent articles on MCAD, PLM, EDA and Electronics IP on IBSystems' MCADCafé and EDACafé.

An affiliate of the HENKE ASSOCIATES team since 2001, LA-based Dr. John R. (Jack) Horgan co-authored this February 2007 Electronics IP Industry Commentary. Dr. Horgan's prior corporate career has included executive positions at Applicon, Aries Technology, CADAM and MICROCADAM, as well as a stint at IBM. Dr. Horgan is also an editor of EDACafé Weekly. Further information on HENKE ASSOCIATES, and URL's for past Commentaries, are available at http://www.henkeassociates.net.


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