Commentary: Electronics IP Industry - A February 2005 Update

Commentary:

Electronics IP Industry - A February 2005 Update


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



In their September 2003, December 2003 and February 2004, May 2004 and August 2004 and November 2004 Electronics IP Industry Commentaries, the authors examined the recent financial history and future outlook 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 (hereinafter known as the "Group-of-8" or "G8"), as representative of the current financial state of the Electronics IP industry. In this February 2005 Commentary we look at the financial performances of these same vendors during the fourth quarter 2004 and the calendar year 2004.

Group-of-8 (G8):

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



For the G8 companies above, we assume that all of their revenues are Electronics IP sales and directly related IP services.

In this issue, you will find Electronics IP News Highlights, the Combined G8 IP vendor revenue & earnings performances for Q4 2004, then the individual Q4 results of each G8 member, followed by stock market performance records of each company. Next are presented the full year 2004 results of each vendor compared to 2003, and finally forecasts for the current quarter for each IP provider.

IP News Highlights

On August 23, 2004 ARM Holdings plc and Artisan Components, Inc. announced that the companies had entered into a definitive agreement under which ARM would acquire Artisan. The acquisition of Artisan Components, Inc. was completed on 23 December 2004. ARM's Q4 profit and loss report did not include any material trading results with respect to Artisan, nor did Artisan release any financial figures for its fourth quarter. However, ARM did make a statement in its financial release concerning Artisan revenue for the quarter; that figure is listed below. (In future, Artisan will no longer appear in our IP commentaries and the G8 will become the G7).

How did the Electronics IP G8 perform in the fourth quarter of 2004?

On the revenue front, Table 1 below reveals that the G8's combined Q4 2004 performance was up 17% compared to the fourth quarter in 2003, but down 3.1% compared to the previous sequential quarter. MoSys had a poor quarter, down 64%, for which it blamed the turmoil surrounding the abortive Synopsys acquisition. Customers and prospects are said to have put off purchase decisions awaiting a final resolution. The firm also lost salespersons during the period. LogicVision was also down a significant 27% year-over-year. Artisan revenue dropped 30% year-over-year as the firm pushed accounts into backlog in anticipation of the acquisition by ARM. Most of the other firms had revenue growth in the 20% to 46% range over last year.

On a sequential basis both MoSys and Artisan suffered significant quarterly declines. Rambus was essentially flat.


Figure 1 below provides a bar graph of each vendor's revenue for Q4 2003, Q3 2004, and Q4 2004 in sequence.

Figure 1 Quarterly Revenues of the Group-of-8 (G8) IP Providers ($ millions)


As shown in Table 2 below, in Q4 2004 the combined earnings of the G8 were $16 million, a considerable improvement over the net loss of $3.7 million a year earlier, but down 56% from the $36 million in the just previous quarter. Fourth quarter earnings data were not available for Artisan and hence Artisan is also not included in the earnings totals for prior quarters. Most of the improvement over last year is due to Ceva and ARM. In descending order, the other gainers were MIPS and Virage Logic. On a sequential basis only MIPS and Virage Logic had increased earnings, but only by a few hundred thousand dollars.


Q4 2004 Results of Individual Electronics IP Providers

On January 27, 2005 Arm Holdings plc announced the results for the fourth quarter the year ending December 31, 2004. Total revenue for the quarter was $41.5 million, up 22% from the $34.0 million in the fourth quarter of 2003 and 5% sequentially from $39.4 million in the prior quarter. In US$ revenue for the quarter was $74.7 million compared $57.0 million in the same quarter a year ago and compared to $70.1 the prior quarter. Revenues in the quarter were split 39% for both licensing and royalties, 14% Development Systems and 8% Services. The USA accounted for 47% of total revenue, Asia 36% and Europe 19%.

The breakdown of the $16.3 million in Q4 royalties was wireless 66%, consumer entertainment 8%, imaging 7%, storage 7%, networking 7% and other 5%. A record 367 million units shipped.

Licensing revenue of $16.3 million was up 13% with 19 licenses signed in Q4.

The acquisition by ARM of Artisan was completed on 23 December 2004. The Q4 profit and loss account reported by ARM does not include any material trading results for Artisan. However, the balance sheet at 31 December 2004 does reflect the acquisition of Artisan. Goodwill increased by �335 million. The combination of ARM and Artisan's complementary product portfolios, sales channels and customer bases allows the combined company to provide one of the broadest offerings of system-on-chip (SoC) IP to its expanded customer base. The combination of ARM and Artisan's complementary and innovative business models is expected to generate revenue benefits, some cost savings from the consolidation of selected corporate functions, an attractive margin structure and strong cash flow generation.

ARM had 1,171 full time employees at the end of 2004, including 347 employees who joined the group as part of the Artisan acquisition. At the year-end, the group had 546 employees based in the UK, 454 in the US, 79 in Continental Europe, 51 in India and 41 in the Asia Pacific region.

Chief Executive Officer Warren East said, "32% year-on-year growth in dollar revenues in 2004 and the positive trend in our order backlog indicate that the ARM stand-alone business is in robust shape. We look forward to 2005 with confidence as we start to realize the benefits arising from the merger with Artisan at the end of last year. Against a likely flatter trading environment in our industry, we expect dollar revenues in the underlying businesses to grow by at least 20% in 2005. "

Chief Financial Officer Tim Score commented, " Again in Q4, revenue growth and careful cost control have combined to yield strong cash generation from ARM's business. We were also particularly encouraged by the strong sequential improvement in licensing revenues, demonstrating that ARM continues to develop a broad range of new technologies which bring real benefit to the ARM Connected Community and end customers. "

Artisan Components, Inc. was acquired by ARM Holdings plc as of December 23, 2004. Artisan did not release any financial data for the quarter or year. However, in its financial press release, ARM stated that "Artisan elected to carry forward as much backlog as possible into 2005. Total revenues in the quarter were $15 million, comprising license revenues of $7 million and royalty revenues of $8 million". ARM did not provide any information on Artisan earnings for the period.

On February 2, 2005 Ceva Inc. reported its results for the fourth quarter and the year ending December 31, 2004. Total revenue for the 2004 fourth quarter was $10.0 million, a three percent increase compared to $9.7 million reported in the third quarter 2004 and a four percent increase $9.6 million in the year ago quarter. This was at the high end of its forecast. Fourth quarter licensing revenue was $6.7 million compared to $6.9 million in the third quarter 2004. A record seven license deals were completed in the quarter. Fourth quarter royalty revenue was $2.0 million (20% of total revenue), representing an increase of 31% from $1.6 million reported in the third quarter 2004. Shipped units by licensees increased to a record 33 million in the fourth quarter 2004 compared to 31 million shipped in the third quarter 2004, and an 88% increase from 17.5 million units shipped in the fourth quarter 2003.

In the quarter, the Company launched CEVA Mobile-Media, targeting the portable multimedia market; launched the CEVAnet third party developer partner program with over 30 independent developers; and announced licensing agreements with Atmel, Zoran, Spreadtrum and Sharp.

Net income for the quarter was $653 thousand, compared to a loss of $9.6 million a year ago when there was $5.8 million in restructuring charges and $3.2 million in impairment charges. Income in the prior quarter was $560 thousand.

Chet Silvestri, Chairman and CEO of CEVA, said, " I am pleased to report that we completed 2004 with our best ever quarterly performance for CEVA. In the fourth quarter CEVA grew revenues, earnings, and royalties while exiting the year with a substantially increased order backlog year-over-year. Another highlight of the quarter was that our licensing partners shipped a record 33 million units, up 88% over the fourth quarter 2003. "

On January 25, 2005 Logic Vision announced the results for the fourth quarter and the year, the period ending December 31. 2004. Total revenue for the quarter was $2.7 million, a decrease of 27% form the $3.7 million in the fourth quarter of 2003 and an increase of 1.3% from the $2.7 million in the prior quarter. This was above its forecast from last quarter. License revenue at $1.6 million was 58% of total revenue and a 42% decrease from the same period a year earlier and a 5% drop from the prior quarter. Service revenue at $1.1 million was 41% of total revenue and a 28% increase over the fourth quarter in 2003 and a 16% increase from the prior quarter.

Net loss for the fourth quarter was $2.3 million compared with a net loss of $1.8 million reported in the third quarter of 2004 and a net loss of $1.7 million in the same quarter a year ago. The higher net loss in the fourth quarter was primarily due to additional expenses related to product development.

"We are very pleased to have achieved our second highest quarterly revenues in the last nine quarters, and we exceeded the fourth quarter guidance that we provided on Oct. 26, 2004, " said James T. Healy, president and CEO of LogicVision. "We have seen consecutive revenue growth over each of the last three quarters, and we look forward to growth in 2005 and beyond."

"We completed the SiVerion, Inc. acquisition during the fourth quarter, which we believe will accelerate time-to-yield and bottom line profits for our customers, including fabless designers, IDM's and semiconductor manufacturers," said Healy. "We remain optimistic about future business activity from our existing customers and about generating new customer interest as a result of the acquisition."

On January 19, 2005 MIPS Technologies, Inc. reported results for its second quarter of fiscal 2005, the period ending December 31, 2004. Total revenue for the quarter was $15.5 million, a 45% increase from $10.7 million in the same quarter a year ago and an increase of 6.4% from $14.6 million in the prior quarter. This is consistent with MIPS forecast from last quarter. As a percentage of total revenue, contact revenue was 3% more than royalty revenue. Contract revenue of $7.9 million was up 67% year-over-year but less than 1% above the previous quarter. Royalty revenue of $7.6 million was up 28% year-over-year and up 13% from the last quarter.

Net income for the quarter was $3.5 million compared to a net income of $477 thousand for the same quarter a year ago and compared to $3.1 million the prior quarter.

"Last quarter we saw strong demand with a record 13 contracts completed, " said Casey Eichler, chief financial officer of MIPS Technologies. " The demand for all product families is strong, but adoption of the 24K core family has exceeded our expectations, with 3 new licenses signed in Q2 for a total of 14 customers. This is complemented by the continued growth trend in royalties as we continue to receive the benefits of our customers' introduction of MIPS-Based™ products in numerous embedded markets. "

On February 9, 2005 Monolithic System Technology, Inc. (MoSys) reported the results for the fourth quarter and the year ending Dec 31, 2004. Total revenue was $1.2 million, a decrease of 64% from the $3.3 million in the fourth quarter a year ago and a 28% decrease from the prior quarter's revenue of $1.7 million. License revenue at $118 thousand was a 94% drop year-over-year and an 8% drop sequentially. Royalty revenue $1.07 million was 88% of total revenue and down 2% year-over-year and 28% from the previous quarter.

The net loss for the quarter was $2.4 million, compared to net loss of $415 thousand in the same period last year and a net profit of $5.1 million in the last quarter which included a $10 million termination fee from the canceled Synopsys acquisition.

On December 31, 2004 MoSys announced that its Chairman, President and CEO Dr. Fu-Chieh Hsu had resigned from the company effective December 30, 2004. Dr. Hsu, a co-founder of the company, cited recent health problems as the reason for his resignation from the company. MoSys' CFO, Mark Voll assumed responsibility for operations at the company and reports directly to the Board during the time the Board conducts a search for a new CEO.

" Although 2004 was a year of unique and disruptive challenges for MoSys, we have made significant progress with our restructuring initiatives aimed at rebuilding MoSys ," commented Mark Voll, Interim CEO and Chief Financial Officer of MoSys. " In the wake of the aborted acquisition by Synopsys, we have successfully enhanced our sales and marketing team, secured sales partnerships that will provide MoSys with an expanded international presence and attracted additional highly qualified members to our board of directors and management team. "

On January 18, 2005 Rambus, Inc. reported the results for the fourth quarter and the year. Revenue for the fourth quarter was $38.6 million, up 19% over the fourth quarter last year and down slightly from the previous quarter. This was consistent with Rambus' forecast from last quarter. Contract revenue was $6 million or 16% of total revenue. This was a 31% increase year-over-year reflecting revenues from contracts signed in 2003 for XDR memory and Redwood interface technologies and a 27% decrease sequentially primarily due to a decrease in a single serial link contract. Royalty revenue was $32.5 million or 84% of total revenue. This amounted to a 17% increase year over year due to an increase in SDRAM and DDR royalties and a 7% from the previous quarter. SDRAM and DDR royalties from memory devices and memory controllers were up 34% year-over-year and 14% quarter-over-quarter. If one includes the Intel cross licensing agreement, these royalties accounted for 52% of total revenue.

Net income for the fourth quarter was $6.5 million (17% of revenue), a drop of 37% compared to $8.6 million in the fourth quarter last year and a drop of 24% from $10.4 million in the previous quarter. Litigation expenses in the fourth quarter were up $5 million from the same period last year.

" Our quarterly revenue growth of 19% demonstrates continued momentum, " said Harold Hughes, chief executive officer at Rambus. " We achieved record revenue for the year at nearly $145 million and our profitability continues to be solid. I am excited to be CEO at Rambus and look forward to leading this team as we help our semiconductor and systems customers deliver new levels of product performance. "

Much of the recent Rambus' analysts call was dedicated to status of various patent infringement cases (Hynix, Infineon, and Micron) and counter charges with upcoming trials and some recent rulings by European Patent Office. Rambus did issue a recent press statement characterizing as outrageous and irresponsible the alleged claim by Hynix that a recent decision by the European Patent Office " effectively clears the company of infringement charges. " On January 20, 2004 Rambus announced that it has received seven summary judgment rulings from the United States District Court of Northern California regarding patent infringement and validity issues in the Rambus patent case involving Hynix Semiconductor. " This summary judgment of infringement is great news and a major step forward toward our goal of being fairly compensated for our innovations, " said John Danforth, senior vice president and general counsel at Rambus. " We look forward to trial, which is currently set for March. " As in all patent cases, one must wait until final resolution.

On January 11 Rambus announced several management changes. Bill Davidow, aged 70, is stepping down as Chairman while remaining a member of the Board of Directors. He is being replaced by Geoff Tate who had been CEO for the last 15 years. Geoff is being succeeded by Harold Hughes who has been on the Rambus board for 2 years. He was most recently the Chairman and CEO of Pandesic LLC, an Intel and SAP joint venture. Mr. Hughes held a variety of positions during his 23 years at Intel Corporation, including Treasurer, the head of the Intel Capital division, Chief Financial Officer and the head of Planning and Logistics. Mr. Hughes holds a B.A. from the University of Wisconsin and an MBA from the University of Michigan.

On January 20, 2005 Virage Logic Corporation reported the results of its first quarter of fiscal 2005, the period ending December 31, 2004. Total revenue for the quarter was $15.9 million, up 46% from $10.9 million for the first quarter of fiscal 2004, and up 4% from $15.3 million for prior quarter. This is at the low end of the forecast from last quarter. License revenue was $13.1 million, up 38% compared with $9.5 million for the same quarter a year ago and $12.2 million up 7.5% for the prior quarter. Royalties were $2.8 million, up 101% compared with $1.4 million for the first quarter of fiscal 2004 but down 11% from $3.2 million in the prior quarter.

During the quarter, the firm signed a total of eight new direct royalty-bearing agreements for the STAR Memory System, with over 100 total STAR Memory System agreements signed to date. Virage Logic also signed 15 new Area, Speed and Power (ASAP) Logic and semiconductor IP platform agreements and two new direct royalty-bearing agreements for the company's NOVeA non-volatile embedded memory product, bringing the total number of agreements to 15. Royalty revenue was recorded under licensing agreements from 49 customers - 38 existing and 11 new.

Net income for the quarter was $1.7 million compared with a net loss for the first quarter of fiscal 2004 of $359 thousand. This was an increase of 15% compared to $1.5 million in the prior quarter.

" We are pleased with our first-quarter results, which continued to be driven by customer adoption of our semiconductor IP platforms, " said Adam Kablanian, Virage Logic's president and chief executive officer. " With new products such as the third-generation Self-Test and Repair (STAR) Memory System, we expect to strengthen our technology and market leadership position. We believe the successful customer adoption of new products, coupled with our semiconductor IP platform strategy, will create opportunities for future growth in our business. "

Stock Market Prices of the G8 Electronics IP Providers

As shown in Tables 3 and 4 below, the combined stock prices for the G8 were down 1.1% in absolute dollars from the same quarter last year but the average percentage change was up 7.5%. As a group the G8 outperformed the three major stock indices in absolute dollars by a tad but trailed the NASDAQ and S&P in average delta. MIPS and Virage Logic stock rose about 80% each. All other stocks declined by double digits from the same period last year.

On a sequential basis the combined stock prices rose 45% in absolute dollars and had an average change of nearly +48%. The smallest rise was 15% for Ceva. Both LogicVision and MIPS increased ~72%. During this quarter the major indices rose an average of 10% led by tech-heavy NASDAQ with 15%.



Calendar 2004 Electronics IP Vendor Performances

The combined revenues of the G8 firms for calendar 2004 rose 22% over 2003 (Table 5) . Only MoSys with a change of -44% had a revenue drop. Virage Logic and MIPS led the pack with 45% and 41% growth, respectively. AMR and Rambus also had revenue growth of over 20%.

ARM, which has maintained marketshare leadership at over 40%, just acquired Artisan, the second ranked player at 12%, which will only cement ARM's dominance in the IP arena. (Figure 4) .



The combined earnings for the G8 in 2004 were $108 million, up by a whopping factor of 8 from 2003! (Table 6) . The biggest gainers year-over-year were ARM and MIPS. Only MoSys and LogicVision had losses for the calendar year.

Stock Prices for the Year

During calendar 2004 ARM and MIPS stock prices rose about 80%. (Figure 5) . All other firms had declining stock prices. LogicVision was the largest decliner with a drop of 35%. In comparison, the major stock indices, S&P, NASDAQ and Dow Jones, rose 9%, 9% and 3% respectively from the beginning of the year. (Figure 6) .

The big increase in MoSys' stock price early last year occurred at the time of its announced acquisition.

Forecast Guidance from Individual IP Providers

The forecast figures shown in Table 7 below are for the midpoint if a range is specified. Growth year-over-year is forecast at nearly 20% but quarter-over-quarter is a more modest 2.3%.

Individual Company-Company Guidance

ARM sees little or no growth in the overall semiconductor industry in 2005. Since ARM reports in Pound Sterling but dollar revenues accounted for 90% of total revenue, ARM is exposed to further dollar weakness. The firm expects both ARM and Artisan businesses to grow by at least 20% year-over-year due to good backlog, healthy sales pipeline and royalty revenue momentum.

As guidance Ceva expects revenue will grow strongly in 2005 and be in the range of $44 million to $46 million compared to $38.5 million in 2004. The Company is expecting full year 2005 net income to be in the region of $3.5 million to $4.5 million compared to $2 million net income for 2004.

"We anticipate that 2005 will be a year of continued growth for CEVA. We enter 2005 with a significantly increased order backlog, healthy sales pipeline and the expectation of continued growth in royalty unit shipments, " commented CEO Silvestri.

As guidance for the First Quarter of 2005 LogicVision expects revenues for Q1 to be in excess of $3.4 million. This compares with $2.7 million in the just completed quarter and with $2.2 million in the first quarter of 2004. Net loss for Q1 is expected to be in the range of $2.1 million to $2.4 million which covers the losses in the previous quarter and in the first quarter a year earlier.

MIPS expects revenue to rise somewhere in the range of 5% to 10%.

As guidance Chief Financial Officer Bob Eulau said that Rambus expects sales of $38 million to $42 million in the next quarter with operating costs and expenses ranging from $31 million to $34 million. He estimates litigation expenses at $7 million to $9 million for the quarter, " but this range is very dependent on the activity of our ongoing litigation ".

Virage Logic currently anticipates total revenues in the range of approximately $16.3 million to $16.6 million, an increase of 4.4% over the $15.9 million in the just completed quarter and an increase of 28% from the $13 million in the same quarter a year ago. Expected total revenues for the quarter are anticipated to include royalties of approximately $2.7 million, essentially the same as last quarter but up ~$1 million from the second quarter of F2004.



1 | 2  Next Page »



Review Article Be the first to review this article

EMA:

Featured Video
Editorial
Peggy AycinenaWhat Would Joe Do?
by Peggy Aycinena
Retail Therapy: Jump starting Black Friday
Peggy AycinenaIP Showcase
by Peggy Aycinena
REUSE 2016: Addressing the Four Freedoms
More Editorial  
Jobs
FAE FIELD APPLICATIONS SAN DIEGO for EDA Careers at San Diego, CA
Manager, Field Applications Engineering for Real Intent at Sunnyvale, CA
Principal Circuit Design Engineer for Rambus at Sunnyvale, CA
Development Engineer-WEB SKILLS +++ for EDA Careers at North Valley, CA
AE-APPS SUPPORT/TMM for EDA Careers at San Jose-SOCAL-AZ, CA
ACCOUNT MANAGER MUNICH GERMANY EU for EDA Careers at MUNICH, Germany
Upcoming Events
Zuken Innovation World 2017, April 24 - 26, 2017, Hilton Head Marriott Resort & Spa in Hilton Head Island, SC at Hilton Head Marriott Resort & Spa Hilton Head Island NC - Apr 24 - 26, 2017
CST Webinar Series



Internet Business Systems © 2016 Internet Business Systems, Inc.
595 Millich Dr., Suite 216, Campbell, CA 95008
+1 (408)-337-6870 — Contact Us, or visit our other sites:
AECCafe - Architectural Design and Engineering TechJobsCafe - Technical Jobs and Resumes GISCafe - Geographical Information Services  MCADCafe - Mechanical Design and Engineering ShareCG - Share Computer Graphic (CG) Animation, 3D Art and 3D Models
  Privacy Policy