Commentary: Electronics IP Industry - A February 2009 Update
[ Back ]   [ More News ]   [ Home ]
Commentary: Electronics IP Industry - A February 2009 Update

Commentary:

Electronics IP Industry - A February 2009 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, November 2006, February 2007, May 2007, August 2007, November 2007, February 2008, May 2008, August 2008 and November 2008 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 2009 Commentary, we look at the financial performances of the "G7" Electronics IP vendors during the fourth quarter of 2008 and for the full year 2008, plus their forecasts for portions of 2009.


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.



The Impact on the G7 of the Economic Recession

Since our last quarterly Commentary on the Electronics IP Industry appeared on EDAcafe in November 2008, the impacts of the current economic recession (that began in December 2007) on global semiconductor sales in general and the G7 IP providers in particular, have begun to accelerate.

First: semiconductors. The Semiconductor Industry Association (SIA) reported that global sales of semiconductors were severely impacted by the world-wide economic turmoil in 2008, resulting in the first year-on-year drop in sales since 2001. Total sales for 2008 were $248.6 billion compared to $255.6 billion in 2007, a decrease of 2.8%.

As with the US jobs situation, the end of 2008 was far worse for semiconductor sales than the beginning. Semiconductor sales fell from $22.3 billion in December 2007 to $17.4 billion in December 2008, a whopping decline of 22%. Also, December sales had declined by 16.6% from November 2008, when sales were $20.9 billion.

SIA President George Scalise said, “The global economic recession severely dampened semiconductor sales in the fourth quarter of 2008, historically a strong quarter for the industry. Weakening demand for the major drivers of semiconductor sales -- including automotive products, personal computers, cell phones, and corporate information technology products - resulted in a sharp drop in industry sales that affected nearly all product lines.”

Scalise added, “As consumers worldwide drive over 50 percent of demand for semiconductors, the fortunes of the chip industry are increasingly linked to macroeconomic conditions such as GDP, consumer confidence, and disposable income. Sales of electronic products held up reasonably well during the first nine months of 2008, but fell sharply as turmoil in the global financial industry unfolded.

The SIA report discussed above was issued on February 2, 2009.

Seondly: G7 IP Providers Forecasts. As we will see in detail in Table 9 later this IP Commentary, the G7 IP Providers were understandably not very forthcoming regarding forecasts for the next quarter (January - March 2009). Those that deigned to forecast at all, heavily qualified their statements with remarks about the uncertainty in the economy and about delays in orders. From the individual comments below, we detect considerable pessimism (and occasional bravado) for the next quarter:

As guidance ARM said, “Semiconductor industry activity slowed down markedly in the fourth quarter and the near-term outlook for the sector remains uncertain. Whilst not immune from the impact of the industry slow down, ARM continues to build an established base of licenses that drives long-term royalty growth. The current licensing opportunity pipeline to enlarge that base further remains robust.

Although there is less visibility than usual at this time of the year, we believe that ARM is positioned to perform resiliently in the context of the challenging trading environment. Unless conditions deteriorate to a greater extent than generally anticipated, we expect group dollar revenues for full-year 2009 to be at least in line with current market expectations of around USD460 million.” This compares to $546 million in 2008.

CEVA sees royalties growing in 2009. Although the licensing pipeline is solid, the firm has less visibility into this area than usual. Consequently CEVA will only give guidance for the next quarter. CEVA expects revenue in the range of $8.7 million to $9.7 million. This compares to $10 million in both the quarter just reported and in the same quarter last year.

As guidance LogicVision expects revenue in the next quarter to be in the range of $3.0 million to $3.2 million, with net income in the range of $0 to $100K. The revenue guidance compares to $3 million in revenue in both the quarter just reported and the same quarter a year ago.

As guidance MIPS believes that royalty revenue could be down up to 20% sequentially and license revenue to be in the range of $10 to $13 million. MIPS expects ASPs to be down but unit shipments to be steady. MIPS did not give a forecast for total revenue.

Regarding guidance, MoSYS CEO Perham stated, “We believe the current weakness in the global economic environment will extend throughout 2009. Certainly, the first quarter will be impacted by the continued slowdown in the consumer market segments beyond the typical seasonality associated with that quarter. This environment has significantly limited our near-term visibility, and we will continue our policy of not providing specific financial guidance until further notice. While we will be stringently managing our expenses, we will continue to strategically invest in R&D in order to position the Company for future growth.”

As guidance Rambus expects revenues in the next quarter to be between $26 and $30 million. This compares with revenue of $38 million in the quarter just completed and compares to $37.9 million in the first quarter of 2008. The firm expects expect operating expenses excluding stock based compensation to be between $57 million and $64 million (which includes an estimate for litigation expenses of $25 million to $31 million).

As guidance Virage Logic said, “Despite the current economic uncertainty, we remain confident that executing our transformation initiatives will enable us to retain our leadership position. We anticipate second quarter fiscal 2009 revenues of $11.25 million to $12.75 million and non-GAAP loss per share of ($0.06) to $0.00 per share. The company expects to realize, before tax, approximately $2.2 to $2.4 million in non-GAAP expenses comprised of FAS123R stock compensation, acquisition related and restructuring expenses." This compares to $12 million in revenue for the quarter just reported and compares to $14.7 million in the same quarter a year earlier.

Thirdly: Overall EDA Sales. While definitely a lagging indicator, the EDA Consortium's Market Statistics Service (MSS) announced (in January 2009) that the overall EDA industry revenue for the third quarter of 2008 declined 10.9% to $1,258.6 million compared to $1,412.1 million in Q3 2007, ongoing evidence of the impact of the economic slowdown that had started in December 2007. (More details toward the end of this Commentary).

Fourth: IP Provider Stock Prices. The combined Q4 2008 stock prices for the G7 decreased in absolute terms nearly 45% year-over-year and decreased almost 18% sequentially. Underperforming even the deteriorating stock markets, the G7's average percentage change was negative 54.5% year-over-year and down 30% relative to the just prior quarter. In the same time period the major stock indexes fell an average of 37.6% year-over-year and 22.1% compared to the previous quarter. (These prices are all discussed in detail later in this Commentary).


Authors' Comments:

As this February 2009 IP Industry Commentary goes to press, we are less than one month into the Barack Obama presidency in the United States. Most people worldwide (but not all, as we shall see below) hope urgently that President Obama and his administration are up to the arduous tasks of repairing the tremendous damage caused by the 8-year reign of his predecessor.

In just the 12 months of 2008 alone, nearly 3 MILLION jobs were lost in the United States. On February 6, 2009, we learned that the Bush 43 legacy lingers, if not the man. Bush 43’s second recession in 8 years had dealt another body blow to the staggering US economy in January 2009.

The US labor department reported February 6 that US employers eliminated 598,000 more jobs in January 2009, the most since 1974, and drove the US unemployment rate to 7.6%, further proof that the nation's job climate continues to deteriorate at an alarming pace with no end in sight.


This is the reality: Jobs being cut and unemployment rising in virtually all sectors of the US economy and among virtually all demographic groups. At the same time, families’ housing values and retirement savings have been pummeled; fully 13.6 million Americans now owe more on their mortgages than their homes are worth, and retirement accounts have collectively lost more than $2 trillion in little more than a year. And by all indications, the worse is yet to come.

The U.S. is now in its deepest economic slowdown since the 1930's. Bush 43 and his administration bequeathed monumental problems for President Obama and the rest of us to overcome. The downward spiral has tremendous momentum and it’ll be very hard to reverse; for example, the Dow Jones industrials fell to their lowest level in more than six years on February 19, 2009.

As a giant first step, President Obama and his fellow Democrats muscled a $787 billion Stimulus Bill through Congress in mid-February 2009, despite nearly universal Republican opposition, and despite the fact that Republican policies (of deregulation, deficit spending, lower taxes, needless wars like IRAQ, etc.) were the very policies that got the economy in trouble in the first place. Worst of all, many Republican politicians have said that they are hoping that the now lawful Stimulus Bill fails, thereby hurting millions more Americans, just so that “the GOP might gain congressional seats in 2010.”

But the new Stimulus Bill is just one step. There are many, many more painful actions that still need to be taken, over years, by the government and by its citizens, to recover from the current economic mess.




How did the Electronics IP G7 perform in the Fourth Quarter of 2008?

On the Electronics IP revenue front, Table 1 below reveals that the G7's combined Q4 2008 revenue performance defied current economic news and posted $242 million, an increase of 7.3% from the $225 million in the fourth quarter of 2007 and an increase of 8.4% from the third quarter of 2008. MoSys was the revenue percentage growth leader year-over-year at nearly +37%, with CEVA a second place with a strong performance at +21.5%. Virage Logic was the largest percentage revenue decliner at -19%, followed by Rambus at -7.2%. On a sequential basis, Rambus was the percentage revenue growth leader at almost +28%. ARM was a distant second at +11%. Virage Logic was again the largest percentage revenue decliner at almost -27%. Keep in mind that sales recognized during a given quarter are often highly dependent on orders booked several quarters in advance, when economic conditions may have been less threatening.


Figure 1 below provides a bar graph of each vendor's revenue for Q4 2007, Q3 2008, and Q4 2008 in sequence.


ARM continues to dominate the G7 IP providers with 61% relative market share. Rambus and MIPS come next with 16% and 11%, respectively. See Figure 2.


Relative to earnings (see Table 2), the G7 IP Providers reported a combined Q4 2008 net income of $13.4 million, despite red numbers from 4 of the G7. This positive Q4 result was due principally to ARM, which generated $28 million in dollar earnings for the quarter. However, the combined Q4 earnings were down 25% compared to $18 million generated in the fourth quarter of 2007, but Q4 2008 improved substantially from the combined loss of $15 million in the just prior Q3 2008 quarter.

MIPS made the most dramatic quarterly turnaround year-over-year, moving from a loss of $12 million in Q4 2007 to net income of almost $5 million in Q4 2008. Conversely, Rambus went in the opposite direction, going from net income of $14.6 million to a net loss of $10.7 million. ARM had a strong Q4 2008 with a 40% rise in year-over-year earnings. On a sequential basis, Rambus' loss of $10.7 million was actually a considerable improvement from its loss of $28 million in the recent third quarter. MIPS also improved significantly from a loss in the just prior quarter. ARM was the only other firm to improve from the prior quarter.




Q4 2008 Results of Individual Electronics IP Providers:
On February 3, 2009 ARM Holdings plc reported financial results for the fourth quarter and the year, the period ended December 31, 2008. Total revenue for the quarter was a record $149 million, a 14.7% increase from the $130 million in the same quarter a year earlier, and an 11.2% increase from the $134 million in the just prior quarter.

Total dollar license revenues in Q4 2008 increased by 8% to $52.8 million, representing 35% of group revenues. PD license revenues were $43.0 million, up 12% versus Q4 2007. License revenues include a larger-than-usual contribution from order backlog due to a major engineering milestone being achieved. PIPD license revenues were $9.8 million, down 9% in Q4; this was primarily due to the timing of revenue recognition. A number of the contracts signed in Q4 were for leading-edge technology which yields lower short-term revenue than more mature technology. As a result, backlog at the end of Q4 2008 was up approximately 5% sequentially.

Year-on-year total dollar royalty revenues in Q4 2008 increased 32% to $76.0 million, representing 51% of group revenues. Royalty revenues comprised $65.5 million for PD and $10.5 million for PIPD.

PD royalties were up 19% sequentially in Q4 2008, due to particularly strong smartphone and microcontroller shipments.

PIPD royalties of $10.5 million include $1.0 million of “catch-up” royalties. Underlying royalties for PIPD were up 2% sequentially, slightly ahead of foundry utilization levels in Q3 2008.

Sales of development systems were $12.9 million in Q4 2008, down 17%, and representing 9% of group revenues.

Service revenues were $7.7 million in Q4 2008, down 5%, representing 5% of group revenues.

The Processor Division (PD), formerly the original ARM, delivered total revenues of $108 million, an increase of 24% from the year ago quarter and a 19.6% increase from the prior quarter. ARM signed 21 processor licenses in Q4. The quarter was characterized by licensing of ARM technologies across the portfolio. In Q4, six new companies licensed ARM processor technology for the first time. Reported PD unit shipments grew 20% sequentially buoyed by growth in automotive, Bluetooth, digital consumer, microcontrollers, storage (HDD and Flash) and Wi-Fi. Reported processor unit shipments were 1.2 billion in the quarter, up 46% compared to Q4 2007.

The Physical IP division (PIPD), the Artisan division established after the acquisition at the end of 2004, had total revenue of $20.3 million, an increase of 4.1% from the same quarter a year earlier but a 5.1% decrease from the preceding quarter. ARM signed 12 physical IP licenses in Q4 for technologies at all process nodes from 180nm to 28nm; and for a wide range of ARM products. Demand for leading-edge physical IP continues as ARM signed a further agreement with an IBM Common Platform partner to develop and license 32nm and 28nm physical IP.

Five licenses for physical IP at the 45 and 40nm process nodes were signed with tier-1 semiconductor companies, such as STMicroelectronics.

Underlying PIPD royalties in Q4 2008 increased 13% year-on-year to a record $9.5 million, ahead of foundry revenues that were up 5% in the equivalent period. ARM continued to expand market share in as underlying royalties were up by more than the improvement in utilization rates at the foundries. PIPD catch-up royalties were $1.0 million compared with $0.3 million in Q4 2007.

In December 2008, ARM acquired Logipard AB, a leading video processor and imaging technology company, from Anoto Group AB. Logipard has offices in Lund, Sweden and has existing licensing deals in place with a global mobile phone manufacturer. The company has changed its name to ARM Sweden AB. The privately-owned designer of power-efficient video encode and decode acceleration technologies for the mobile and consumer markets is the leading provider of video IP to one of the world's leading mobile technology suppliers for platforms used by LG Electronics and two other leading mobile handset OEMs. The Logipard video IP has shipped in more than 30 million mobile phone units to date.

The acquisition of video processor technology builds on the success of the ARM Mali graphics processor, and it enables ARM to provide customers with an integrated multimedia platform, which is becoming increasingly important in devices such as mobile computers, portable media players and digital TVs.


Net income for the quarter was $27.9 million, an increase of 39.5% from the $7.9 million in the fourth quarter of 2007 and a 25.4% increase from the $22.2 million in the third quarter of 2008.

Warren East, ARM Chief Executive Officer, said, "We are pleased to see ARM technology being increasingly utilized in innovative consumer electronics products, leading to the highest ever group revenues for both the fourth quarter and for the full year.

We saw strong demand for new ARM technology, with industry leaders continuing to license our latest generation processors and physical IP. ARM has built a base of more than 580 processor licenses that is driving long-term royalty growth.

We are encouraged to see that the inherent operating leverage in the ARM business model, combined with sound financial discipline and the recent strengthening of the dollar against sterling, has given rise to earnings growth in 2008 of more than 20%."

On February 3, 2009 CEVA, Inc reported financial results for the fourth quarter and the year ended December 31, 2008. Total revenue for the quarter of 2008 was $10.0 million, an increase of 21% compared to $8.2 million reported for the fourth quarter of 2007, but the $10 million was a decrease of 1.9% from the $10.2 million in the just prior quarter. Licensing revenue for the quarter was $4.6 million or 46% of total revenue, an increase of 15% from $4.0 million reported for the fourth quarter of 2007 but a decrease of nearly 23% from the $6 million in the previous quarter. Royalty revenue for the quarter was a record high $4.3 million accounting for 43% of total revenue, an increase of 41% from $3.0 million reported for the fourth quarter of 2007 and a 30% sequential increase from the third quarter of 2008. Revenue from services and support was $1.1 million or 11% of total revenue, down 6% compared to $1.2 million for the fourth quarter of 2007 but up 19% sequentially.

During the fourth quarter of 2008, CEVA concluded six new license agreements, all of which are for CEVA DSP cores, platforms and software. Target applications for customer deployment are 2G and 3G handsets, smartphones and mobile multimedia products. Geographically, four of the six deals concluded were in Europe, one in the U.S. and one in the Asia Pacific region. Of the license deals concluded, two are with strategic customers. One of the strategic agreements is with a large merchant chip supplier in the handset market who signed a comprehensive agreement for the use of CEVA DSP cores in low-end and mid-range handset products. The second strategic agreement is with a leading Asia-based semiconductor company in the consumer market who is expanding into the handset market targeting the 3G segment.

In the quarter CEVA customers shipped 80 million units. Of these, 65 million units were from customers paying per unit royalties, and 15 million were from customers still on prepaid royalties. The total was 11% higher than the previous quarter's 72 million units (54 million and 18 million), but 7% lower than the preceding quarter.

Net income for the quarter was $960 thousand, compared to a net loss of $251 thousand in the year ago quarter, and compared to a net gain of $1,403 thousand in the just previous quarter.

Gideon Wertheizer, Chief Executive Officer of CEVA, said, "I am very proud of CEVA's progress during 2008. It was an outstanding year for the Company from both a strategic and a business perspective. Not only have we gained considerable market traction in the handset, portable and consumer electronics markets, but as a result of the industry-wide migration to CEVA DSP cores, our technologies are now in mass production at Nokia, Samsung, LG Electronics, Sony Ericsson, Sony Electronics and many others. I believe that our market position and strong business fundamentals will allow us to keep growing, even in the midst of uncertain economic times."

Yaniv Arieli, Chief Financial Officer of CEVA, stated, "The fourth quarter of 2008 delivered another significant milestone for CEVA with record high royalty revenue of $4.3 million. This continued royalty progress is clearly reflected in the Company's record full year 2008 financials with total revenue up 22% year-over-year to $40.4 million, combined with significant profitability and net income per share improvements. The Company also managed to generate positive cash flow of $8.3 million during 2008, strengthening our balance sheet considerably. As of December 31, 2008, CEVA's cash balances and marketable securities were $84.6 million.”

Arieli concluded, "In the context of the current economic downturn, we recently made adjustments to our 2009 expense levels to ensure the sustainability of our financial progress by reducing overall expenses by approximately $1.0 million"
In early December 2008 LogicVision confirmed receipt of an unsolicited, non-binding proposal from Virage Logic Corporation to acquire all of the outstanding common stock of LogicVision for $1.05 per share, subject to due diligence and the negotiation of definitive agreements. LogicVision decided that the offer was inadequate and was not in the best interests of LogicVision's stockholders. LogicVision announced that its Board of Directors had adopted a Stockholder Rights Plan intended as a means to guard against abusive takeover tactics. Virage Logic withdrew its proposal on December 17, 2008.

On January 27, 2009 LogicVision, Inc. reported financial results for the fourth quarter and the full year, the periods ended December 31, 2008. Total revenue in the fourth quarter was $3 million, an increase of 4.2% from the $2.9 million in the fourth quarter of 2007, but a 5.8% decrease from the $3.2 million in the prior quarter. License revenue was $1.4 million or 47% of total revenue. This was 5.8% increase from the fourth quarter of 2007, but an 11.7% decrease from the third quarter. Royalty revenue was $1.6 million, or 53% of total revenue. This represented a 3% increase year-over year and was essentially flat sequentially.

The company exited the fourth quarter with a 12-month backlog of $9.9 million, compared with a 12-month backlog of $10.4 million at the end of the third quarter. The company's total backlog was $17.9 million as of December 31, 2008.

On February 5, 2009 Magma Design Automation Inc. and LogicVision Inc. announced that Magma licensed its ATPG technology to LogicVision. The agreement enables LogicVision to accelerate the expansion of its product portfolio and provide customers with comprehensive DFT capabilities that improve test quality and reduce turnaround time and costs of nanometer ICs. A separate agreement was also signed that allows Magma to distribute LogicVision products to its strategic customers.

LogicVison's net loss for the fourth quarter of 2008 was $782 thousand, a $70 thousand improvement from the loss of $712 thousand in the year ago quarter and an almost $300 thousand improvement from the loss of $499 thousand in the just preceding quarter.

James T. Healy, president and CEO of LogicVision, said, “In the fourth quarter, our revenues were within our guidance range, and our cash balance at the end of the fourth quarter was significantly better than our forecast. Throughout 2008, key customers renewed their contracts with us, some customers adopted our products enterprise-wide, and we signed new customers that could potentially grow into bigger accounts. As a result, our 2008 revenues increased five percent from last year, and new orders of $17.9 million in 2008 were 49 percent higher than $12.0 million in new orders in 2007.”
On January 29, 2009 MIPS Technologies, Inc reported the financial results for its second quarter of fiscal 2009, the period ended December 31, 2008. Total revenue for the quarter was $26.3 million, essentially flat with respect to the $26.5 million in the same quarter a year earlier and a 0.7% increase from the $26.2 million in the preceding quarter. The small quarterly sequential revenue increase was driven by increased revenues from royalties offset by slightly lower license revenue. Royalty revenue was $12.9 million, accounting for 49% of total revenue. This was a 3.5% increase from the year ago quarter and a 9.5% increase from the prior quarter. Contract revenue was $13.4 million, or 51% of total revenue. This was a drop of 3.5% year-over-year and a drop of 6.5% sequentially. The company has 427 employees, down 29 from the prior quarter. Customers shipped 126 million units in the preceding quarter versus 107 million in the corresponding quarter a year earlier.

Net income for the second fiscal quarter was almost $5 million, a significant turn around from net losses of $12.1 million a year earlier, and $7 million in the preceding quarter.

On February 3, 2009 MIPS announced the departure of Chief Operating Officer John Derrick, effective February 6, 2009. The Processor Business Group will now be managed directly by John Bourgoin, MIPS Technologies' president and CEO.

John Bourgoin, president and CEO, said, "I am pleased with the results of our Processor Business; our cost controls, GAAP net income and positive cash flow, all of which contributed to the strengthening of our balance sheet during (fiscal) Q2. We are actively managing our costs worldwide to ensure the overall financial health of MIPS during these challenging economic times."
On February 9, 2009 MoSys, Inc reported financial results for the fourth quarter and the year, the periods ended December 31, 2008. Total revenue for the quarter was $3.96 million, an increase of nearly 37% from the $2.9 million in the fourth quarter of 2007, but a slight 2.3% dip from the $4.05 million in the third quarter of 2008. Licensing revenue was $859 thousand, or 22% of total revenue. This was an increase of 121% from the year ago quarter, but a 28% drop from the prior quarter. Royalty revenue in Q4 was $3.1 million, which included royalties associated with the Nintendo Wii game console. This compares with royalty revenue of $2.9 million in the previous quarter and $2.5 million in the fourth quarter of 2007.

Net loss for the fourth quarter was $6.31 million, about 30% more than the loss of $4.59 million a year earlier, and a 94% increase from the loss of $3.2 million in the preceding quarter. The fourth quarter just ended included impairment and restructuring charges of $2.7 million.

On December 10, 2008 the Company announced a plan to exit its unprofitable analog/mixed signal product lines. As part of this plan, the Company will be reducing headcount by approximately 90 employees, primarily located in China and Romania. The Company began executing this plan in the fourth quarter and expects to substantially complete the process in the first quarter of 2009. The Company expects to realize annualized cost savings of approximately $5.5 million.

Len Perham, MoSys' President and Chief Executive Officer, stated, “The continued decline in the global economic environment has resulted in customer projects being delayed or pushed out, which impacted our license revenue during the quarter. These results were partially offset by an increase in royalties associated with the Nintendo Wii game console and royalties generated by another major OEM customer that licenses our 1T-SRAM embedded memory IP for advanced mobile phone applications. During the fourth quarter, we signed a new license with a mobile phone provider for use of our application-specific DDI (display driver integrated circuit) memory IP in their display driver subsystems. We ended the year with five customer design wins for our DDI solution and brought up support at three foundries. In addition, we made significant progress with our 1T-FLASH program, as our lead customer moved into pre-production manufacturing and expects to begin shipping production samples late first quarter of 2009 with a full production ramp later this year.”
On January 29, 2009 Rambus, Inc reported financial results for the fourth quarter and the year, the periods ending December 31, 2008. Total revenue in the fourth quarter was $37.6 million, down 7.2% from the fourth quarter of last year but up 27.8% from the third quarter (due primarily to the receipt of the withheld royalties related to the now vacated FTC order and increased royalties from technology licenses). Royalty revenue was $35.7 million, accounting for 95% of total revenue. Contract revenue was $1.9 million, down 58% year-over-year, and down 48% sequentially.

During the fourth quarter of 2008, the Company repurchased approximately 1.6 million shares of common stock with an aggregate value of $14.3 million. Additionally, Rambus repurchased approximately $23.1 million in face value of its convertible notes for approximately $18.7 million, resulting in a gain of $4.4 million in the fourth quarter of 2008.

Net loss for the recent quarter was $10.7 million, compared to a net gain of $14.6 in the year ago quarter and compared to a net loss of $27.9 million in the preceding quarter.

Total costs and expenses for the fourth quarter of 2008 were $55.6 million, compared to $72.6 million in the fourth quarter of 2007 and compared to $60 million in the prior quarter. Stock-based compensation was down 47% year-over-year but general litigation expenses were up 10%.

On February 2, 2009 Rambus announced its “Mobile Memory Initiative”. This development effort focuses on high-bandwidth, low-power memory technologies targeted at achieving data rates of 4.3Gbps at best-in-class power efficiency. With this performance, designers could realize more than 17Gigabytes per second of memory bandwidth from a single mobile DRAM device. These technologies enable a memory architecture ideal for next-generation smartphones, netbooks, portable gaming, and portable media products. Rambus planned to demonstrate a silicon test vehicle for its Mobile Memory Initiative at DesignCon 2009 (February 2 - 5, 2009).

On February 3, 2009 Rambus announced that the U.S. District Court for the Northern District of California stayed the coordinated cases involving memory manufacturers Hynix, Micron, Nanya, and Samsung, in view of a recent ruling from the Delaware District Court. In the Delaware case, the Court ruled that Rambus cannot enforce the patents in suit against Micron due to document spoliation. In an earlier case against Hynix (Hynix I), the California Court found that Rambus had not “spoliated” any evidence. Due to the conflicting opinions of these two courts, the California Court decided to stay further proceedings except for Hynix I. To prevent inconsistent outcomes, the Court will “expeditiously enter judgment in the Hynix I action so that the Federal Circuit can undertake a consolidated review of the spoliation question and bring some finality to the issue.”

On February 9, 2009 Judge Sue Robinson of the U.S. District Court for the District of Delaware entered a final judgment against Rambus and in favor of memory chip maker Micron, which had accused Rambus of spoiling evidence in the case. Rambus is barred from enforcing 12 patents involved in a legal fight with Micron Technology.

Harold Hughes, president and chief executive officer at Rambus, said, “It was a challenging year yet we finished the fourth quarter above guidance thanks to strong technology royalties as well as a one-time benefit of withheld royalties received once the FTC's order was vacated. In a time of considerable economic uncertainty, we have the financial strength to continue innovating in our focus markets and vigorously pursue fair compensation for the use of our patented inventions.”
On January 21, 2009, Virage Logic Corporation announced a restructure as part of its on-going transformation to become a broad line supplier of highly differentiated standard IP products. The restructure includes the consolidation of two smaller R&D sites into four major R&D centers and closer alignment of sales resources to market opportunities. As a result of the restructure and the anticipated increase in efficiencies, the company expects to realize approximately a 13% reduction in labor expenses.

On January 28, 2009 Virage Logic Corporation reported financial results for the first quarter of its fiscal 2009, the period ended December 31, 2008. Total revenue for the quarter was $11.35 million, a decrease of over 19% from the $14.1 million in the first quarter of fiscal 2008, and an almost 27% decrease from the fourth quarter of fiscal 2008. License revenue was $8.5 million, accounting for 75% of total revenue. This was a decrease of 21% year-over-year and a decrease of 30% sequentially. Royalty revenue was $2.8 million or 25% of total revenue. This was a decrease of almost 14% from the year ago quarter and a 15.6% decrease from the prior quarter. Net loss for the quarter was $2.6 million compared to a net gain of $1.1 million a year earlier and a net loss of $47 thousand in the previous quarter.

Dr. Alex Shubat, president and CEO of Virage Logic, said, “Our first quarter fiscal 2009 proved to be challenging. We began with a solid backlog and strong sales pipeline, but the rapid decline of the semiconductor industry impacted our business towards the end of the quarter. A number of customers delayed orders that we now expect will close in the next one to two quarters. We also experienced a small number of cancellations, something the company has never seen before. Our decline in royalties is attributed to lower wafer starts at our major foundry partners."

He added, "Last week we announced a restructure that will increase efficiencies as part of our on-going transformation. We consolidated two smaller R&D sites into four major R&D centers and realigned our sales resources to market opportunities. We expect to realize approximately a 13% reduction in labor expenses and additional overhead savings from site consolidations."

G7 Performance for all of 2008

Since several G7 IP firms have fiscal years other than the calendar year, we have collected data for the last four reported quarters to obtain 2008 figures. The combined revenue for the G7 firms in US dollars in 2008 was $920 million, a meager 3% increase compared to $894 million in 2007. See Table 4. All the G7 firms except MoSys (-2.1%) and Rambus (-20.8%) experienced some level of positive revenue growth. CEVA was the leader in terms of percentage revenue growth at 21.5%, followed by MIPS at 18.9% and Virage Logic at 15.4%.


Unfortunately, the combined earnings for the G7 firms in 2008 was a giant net loss of $240 million, compared to a combined net income of a meager $19.9 million in 2007, a $260 million negative swing. Much of the G7 combined loss in 2008 was due to Rambus (-$195 million) and MIPS (-$114 million), losses which were due principally to one-time events. While small in absolute terms, CEVA's earnings were up by a factor of more than 5. ARM, the only other firm with net income, delivered earnings growth of nearly 19%. See Table 5.


Individual Company Performance Calendar 2008

For the year 2008 ARM reported total revenue of $546 million, an increase of 6.2% from the $514 million in 2007. The PD division generated $372 million, an increase of 9.3%, while the PIPD division generated $85 million, a decrease of just over 2%. Development Systems had $58 million in revenue, an increase of 4%, while Services booked $32 million in revenue, a decrease of 0.3%.

Licensing accounted for 35% of total revenue. Royalties were 49%, Development Systems accounted for 11% and Services for under 6%.


Net income for 2008 for ARM was $86.8 million, an 18.7% increase form the $73.1 million in 2007.

For 2008 CEVA produced total revenue of $40.4 million, up 21.5% from the $33.3 million in 2007. Licensing revenue was $21.7 million or 54% of total revenue. This was up 11.3% from the prior year. Royalty revenue was $14.4 million, a record high and accounting for 36% of total revenue. This was an almost 58% increase from 2007. Service and other revenue was $4.3 million, down 6.5% year-over year.

A total of 30 new licensing agreements were signed in 2008, compared to 36 agreements in 2007. Shipped units by licensees increased 36% to a record 307 million in 2008, a 36% increase compared to 227 million units shipped in 2007.

Net income for CEVA for the year was $8.6 million up by a factor of 5.6 from the $1.3 million in 2007.

For the year LogicVision yielded total revenue of $12.2 million, up 4.8% from 2007's $11.6 million. License revenue at $5.8 million accounted for 47% of total revenue. License revenue was up 9.3% year-over-year. Royalty revenue at $6.4 million accounted for 52.6% of total revenue. Royalty revenue was up 2.1% from the prior year. Net loss for the year was $3.5 million, a slight improvement of almost $189K from the net loss of $3.7 million in 2007.

For the calendar year 2008 MIPS had total revenue of $108.7 million, an increase of almost 19% over the $91.5 million in calendar 2007. For the year MIPS endured a net loss of $115 million compared to a net loss of $15.7 in calendar 2007.

In the second quarter MIPS recorded a $103.1 million impairment of goodwill and intangible assets, of which $101.4 million was associated with the acquisition of the Analog Business Group (Portugal's Chipidea).

For the year 2008 MoSys collected total revenue of $14 million, down just over 2% from the $14.3 million in 2007. License revenue was $3.16 million, accounting for 22% of total revenue. This was a drop of 40%. Royalty revenue was $10.87 million or 78% of total revenue. This was an increase of almost 20%. Net loss for the year was $18.4 million, an increase of almost $10 million over the loss of $8.5 million in the prior year. R&D expenses were about $5 million higher in 2008 than 2007.

For the year 2008 Rambus delivered total revenue of “just” $142 million, a 21% drop from the $180 million in 2007. Royalty revenue was $127 million or 89% of total revenue, a drop of almost 18%. Contract revenue was $15.6 million, a decrease of just over 39%. Net loss for 2008 was $195 million, compared to a net loss of $27.7 million in 2007.

During the second quarter of 2008, Rambus recorded a valuation allowance of $130.5 million against its net deferred tax assets to fully reserve previously-recorded tax benefits generated from its pre-tax losses in the U.S. Pursuant to the Statement of Financial Accounting Standard 109: Accounting for Income Taxes, the Company determined this valuation allowance was required due to significant negative evidence, such as cumulative losses in recent years and projected losses from operations. Projected income from settlements or litigation was not included in the determination for the valuation allowance. The valuation allowance will be maintained until sufficient positive evidence exists to support its reversal.

Virage Logic's total revenue for the last four quarters came in at $56.6 million, a 15.3% rise from the $49 million in the preceding four quarters. License revenue at $12 million was 80% of the total, while royalty revenue at $2.6 million was 20%. Net loss for the last four quarters was $3.1 million.


Stock Market Price Changes of the G7 Electronics IP Providers - not so good !

As shown in Tables 7 and 8 and Figure 3 below, the combined Q4 2008 stock prices for the G7 decreased in absolute terms nearly 45% year-over-year and decreased almost 18% sequentially. Underperforming even the deteriorating popular stock markets, the G7's average percentage change was negative 54.5% year-over-year and down 30% relative to the prior quarter. In the same time period the major indexes fell an average of “only” 37.6% year-over-year and 22.1% compared to the previous quarter.


On a year-over-year basis, all G7 stock prices tumbled. Rambus fell the least at minus 24% while MIPS was the largest decliner at -78%. LogicVision and Virage Logic declined over 60%. MoSys fell over 50% and both ARM and CEVA suffered declines over 40%.

On a sequential basis, Q4 2008 vs. Q3 2008, Rambus (up to $15.92) was the clear winner at +24%, the only stock to increase. Rambus stock price has since fallen (see data just below). CEVA was in “second place”, limiting its drop to “only 16%”. MIPS was again the largest decliner at -68%. MOSY and Virage Logic stock price fell around 50%. ARM and LogicVision suffered drops over 20%.

As this edition of the EDA IP Industry Commentary goes to press, readers may be interested in G7 stock prices and Market Capitalizations, circa February 13, 2009:


Figure 5 below gives a visual sense of the steep decline of G7 (average -54%) stock prices over the calendar year.


Figure 6 below shows the stock indexes performance for calendar 2008 which dropped on average about 40%.



Forecast Guidance from Individual IP Providers

As reported at the very beginning of this issue of the IP Commentary, the G7 IP Providers were not very forthcoming regarding forecasts for next quarter. Those that commented heavily qualified their statements with remarks about the uncertainty in the economy and about delays in orders. From Table 9 below we see considerable pessimism for the next quarter, compared to the quarters just reported.


EDA Consortium's Market Statistics
On January 12, 2009 the EDA Consortium's Market Statistics Service (MSS) announced that the overall EDA industry revenue for the third quarter of 2008 declined 10.9% to $1,258.6 million compared to $1,412.1 million in Q3 2007, ongoing evidence of the impact of the economic slowdown that had started in December 2007.

In the third quarter, the CAE segment accounted for 37% of the total EDA revenue, IC Design & Verification for 23%, Semiconductor IP for 21%, PCB/MCM for 10.3% and Services for 8%. CAE and IC D&V declined in the vicinity of 20% while Services shot up 25%.



For the third quarter of 2008 North America accounted 44% of total EDA revenue, Europe for almost 20%, Japan for 20% and Rest-of-World for 16%. Japan was the only region to show increased revenue. North America and Europe suffered low double digit year-over-year decreases.



Dr. Walden C. Rhines, EDAC chair and Mentor Graphics CEO and chairman, said “Surprisingly high year-over-year growth in the services segment and a small increase in PCB design tools and Semiconductor IP were offset by declines in CAE and IC Physical Design & Verification, resulting in an overall decline for Q3, 2008. While the double-digit drop affected all regions except Rest of World (ROW), which showed only 1 percent decline, all regions except North America had a positive four-quarter moving average. This illustrates the sharpness of the decline in third quarter.”

Since the EDA Consortium reports lag by over three months, we won't know the total EDA revenue results for Q4 2008 and for the 2008 year till April or May of 2009.



####




Comments? Feedback? Tell us what you think about this topic, or share any additional information you may have on the subject! Submit your comments to: EDACafe-Editor.



About the Authors of this Electronics IP Commentary:

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 MCAE/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. In February 2007, Henke became affiliated with Cyon Research's select group of experts on business and technology issues as a Senior Analyst. This Cyon Research connection aids and supplements Henke's ongoing, independent consulting practice (HENKE ASSOCIATES).

An affiliate of the HENKE ASSOCIATES team since 2001, LA-based Dr. John R. (Jack) Horgan co-authored this February 2009 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.

Since May 2003 the authors have now published a total of seventy-three (73) independent articles on MCAD, PLM, EDA and Electronics IP on IBSystems' MCADCafé and EDACafé.

Further information on HENKE ASSOCIATES, and URL's for past Commentaries, are available at http://www.henkeassociates.net. March 31, 2009 will mark the 13th Anniversary of the founding of HENKE ASSOCIATES.

Inquiries welcome, email Email Contact.


Rating:
Reviews:
For more discussions, follow this link …