Commentary: Electronics IP Industry - A February 2009 Update


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.
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).

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Review Article
  • Great Aricle November 14, 2009
    Reviewed by 'Gary Smith'
    Russ & Jack,
    Great work. This really puts IP in perspective. I'm writing a Research Viewpoint on competitive business models and one comment I've read on this is something like "The leader in IP was profitable, number two lost money and the rest were all small." I'd like to quote that in my report, unfortunately I can't find the quote and I don't know who said it. Can you guys help me find it ?

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