Commentary: Electronics IP Industry - A November 2008 Update


Electronics IP Industry - A November 2008 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 and August 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 November 2008 Commentary, we look at the financial performances of the "G7" Electronics IP vendors during the third quarter of 2008.

Group-of-7 ("G7"):

ARM Holdings plc
Ceva, Inc.
LogicVision, Inc.
MIPS Technologies, Inc.
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 EDA and Electronics IP Industry News Highlights

GSA News:

On October 15, 2008 the Global Semiconductor Alliance (GSA) released the CYQ2 2008 version of its Global Semiconductor Financial Report. While issued three and a half months in arrears, this quarterly report includes detailed trend analysis on financial data for fabless, IDM, pure-play foundry, intellectual property, electronic design automation, design service and back-end sectors.

Worldwide semiconductor revenue totaled $67.4 billion in CYQ2 2008, falling 2% quarter-over-quarter, but rising 5% year-over-year.

Fabless revenue totaled $13.9 billion, which grew 4% quarter-over-quarter and grew 9% year-over-year. This revenue equated to 21% of the semiconductor sales total in the second quarter.

The top 10 fabless companies by second quarter revenue combined for $8 billion, or 58% of total fabless revenue in Q2 2008 (see Table 1 below):

SIA News:

On October 30, 2008, the Semiconductor Industry Association (SIA) reported that worldwide sales of semiconductors, the second-largest U.S. export, increased by only 1.6% to $23 billion in September 2008 compared to sales of $22.6 billion in September 2007. Sales also grew by 1.1% from August 2008 when sales were $22.7 billion. Sales of $196.4 billion for the first nine months of 2008 were up by 4% compared to the first nine months of 2007, when sales were $189 billion. Excluding memory products, industry sales in September grew by 7.8% year-on-year.

SIA President George Scalise said, “The rate of semiconductor sales growth slowed in September as the industry began to feel the effects of the turmoil in world financial markets. We face a near-term period of uncertainty with a steep decline in consumer confidence and caution in the enterprise segment.”

IP Commentary Authors' Note: Falling US home prices, chronic US unemployment and sinking stock & cash investments have driven consumer confidence to record lows in October. The Conference Board said on October 28, 2008 that the US consumer confidence index fell to 38, down from a revised 61.4 just last month. That's 38, folks --- the lowest level for the index since the Conference Board began tracking consumer sentiment some 41 years ago!

The SIA's Global Sales Report (GSR) is a three-month moving average of “sales activity” tabulated by the World Semiconductor Trade Statistics (WSTS) organization, which represents approximately 66 companies. The moving average for the third quarter shown in Table 2 below has the Americas accounting for only 14% of “sales activity”, Europe slightly ahead, Japan accounting for over 18% and Asia Pacific accounting for over 52%:

MIPS News:

On September 03, 2008 MIPS Technologies announced the resignation of Jose Franca, founder of Chipidea Microelectronica, S.A., effective immediately. Professor Franca resigned to pursue his personal interests and resume his career in academics. MIPS acquired Chipidea last fall.

Virage Logic News:

On October 02, 2008 Virage Logic announced the promotion of Alex Shubat, Ph.D. from COO to president and CEO, and the appointment of J. Daniel McCranie from chairman to executive chairman. Dr. Shubat takes over his new responsibilities from Mr. McCranie who, in addition to serving as chairman, also served as president and CEO.

LogicVision News:

On October 14, 2008 LogicVision announced that, as part of its expense reduction efforts, three of its executive officers would be leaving the Company and their duties will be assumed by existing employees. The three departing executives are Bruce M. Jaffe, Vice President, Finance and CFO, Farhad Hayat, Vice President, Marketing, and Ronald H. Mabry, Vice President, Field Operations and Application Engineering.

Rambus News:

On October 17, 2008 Rambus announced it had received an order from the FTC authorizing the receipt of “Excess Consideration pursuant to any contingent contractual obligations.” Tom Lavelle, senior vice president and general counsel for Rambus, said, "The Commission's order confirms that we are able to receive the royalty payments that were withheld as a result of the Commission's prior orders. With the FTC's orders vacated, we are able to receive the royalties that we negotiate in good faith with our licensees or prospective licensees."

Cadence Design Systems News:

As pointed out in this and all previous issues of the Electronics IP Commentary, the Big 3 EDA vendors (Synopsys, Cadence and Mentor Graphics) also play a role in the IP marketplace. However, these three vendors do not report their IP revenues separately. Nevertheless, the behaviors of the Big 3 have a significant impact on the overall EDA and IP industries, and relevant news from the Big 3 is frequently presented here.

Accordingly, the following is news on Cadence, circa the first week of November:

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