Commentary: Electronics IP Industry - An August 2006 Update

Net loss for the third fiscal quarter was $1.6 million, compared to a net loss of $1.3 million in the same period a year earlier, and compared to a net gain of $176K in the prior quarter. The recent loss included $1.6 million of stock-based compensation expense related to the adoption of FAS123R. The company had a tax benefit of $1.1 million in the prior quarter.

Adam Kablanian, Virage Logic president and CEO, said, “We are very pleased to have achieved both sequential license revenue growth and continued profitability on a non-GAAP basis. These achievements are a result of the improvements we continue to make in managing the sales and engineering processes involved in licensing our semiconductor IP. We believe that these improvements together with the organizational changes that we've made in recent quarters will enable us to cost-effectively scale our semiconductor IP licensing growth."

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 20% year-over-year, but decreased almost 1% sequentially. The average percentage change was up 12.3% year-over-year, but down 4% sequentially. During the quarter the major stock indexes decreased 3.8% year-over-year, and increased nearly 7.4% sequentially.

Rambus and MoSys had the largest year-over-year percentage rise at 70.5% and 55.5%, respectively. ARM was the only other stock to advance. LogicVision and MIPS had double digit declines at -16.3% and -15.7%, respectively.

On a sequential basis, Rambus and Mosys had significant gains at 51% and 34%, respectively. MIPS, LogicVision and Ceva had significant sequential declines, at -47%, -36% and -22%, respectively.

Forecast Guidance from Individual IP Providers

The forecasts from the six IP companies who provided guidance call for year-over-year collective growth of 23%, but a decline of 3.5% sequentially. MIPS is the most bullish, projecting 49% growth. LogicVision, MoSys, Rambus and Virage Logic are all expecting around 20% growth. On a sequential basis, MoSys is forecasting over a 100% increase. Virage Logic is the only other firm projecting an increase. Rambus is forecasting an 11% drop sequentially.

Individual Company by Company Guidance

As guidance Ceva expects revenues for the third quarter to be between $7.7 million and $8.7 million, compared to $8.4 million in the quarter just completed and $8.4 million in the third quarter of 2005. For the year 2006 Ceva expects revenue to be between $32.5 million and $33.5 million, compared to $35.6 million in 2005.

As guidance LogicVision expects revenues in the next quarter to be in the range of $2.5 million to $2.7 million. This compares to $2.8 million in the quarter just completed, and $2.2 million in the same quarter a year ago. Net loss is expected to be in the range of $2.0 million to $2.2 million, compared to $1.7 million in the quarter just reported.

As guidance MIPS Technologies expects total revenue in the next quarter to be flat to down 5%, compared to last year, due mostly to seasonality. This would be about $11.6 million, compared to $18.3 million in the quarter just completed.

As guidance MoSys said that revenue in the second half of the year would be in the range $9 million to $11 million, about a 75% increase over the first half. This revenue is to come from 65nm technology licensing to IDM, 90nm and 65nm classic macro licenses and per unit revenue.

CEO Chet Silvestri said, "We are pleased with the progress we have made in our 65nm initiatives -- both for our CLASSIC Macros and our technology licensing. We expect these initiatives to drive increased licensing revenue in the latter part of 2006 and to drive our royalty growth in 2007. Also during 2007 we anticipate strong royalty growth from the success of Nintendo's Wii(TM) video game console."

As guidance Rambus expects revenue in the third quarter between $42 million and $45 million. This compares to $49 million in the quarter just reported, and $36 million in the third quarter of 2005.

As guidance Virage Logic anticipates total revenues in the next quarter of approximately $15.4 million to $15.8 million, including royalties of approximately $4.0 million to $4.3 million. This compares to $15.3 million in the quarter just completed, and $12.8 million in the same quarter a year earlier.

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 June 29, 2006, the EDA Consortium's Market Statistics Service (MSS) announced that overall EDA industry revenue for Q1 of 2006 was $1,215 million versus $1,108 million in the fourth quarter of 2005, an increase of 10%.

During Q1 2006, CAE accounted for 42% of the total revenue, IC Design and Verification for 26%, PCB and MCM for 7%, Semiconductor IP for 18.5% and Services for 6.5%.

During Q1 of 2006, North America accounted for 47% of total revenue, Europe for 18%, Japan for 24% and ROW for 11%.

Dr. Walden C. Rhines, chairman and CEO of Mentor Graphics Corporation and vice-chair of the EDA Consortium, said, “Last year's fourth quarter strength expanded in Q1, fueled by solid growth in North America and Western Europe”.

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


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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 three dozen. 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.

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