Commentary: Electronics IP Industry - A November 2008 Update





Q3 2008 Results of Individual Electronics IP Providers:
On October 28, 2008 ARM Holdings plc reported financial results for the third quarter, the period ended September 30, 2008. Total revenue for the quarter was $134 million, an increase of 7% from the $125 million in the third quarter of 2007 and an increase of 4.9% from the $128 million in the second quarter. The $134 million was ARM's highest quarterly revenue ever and around the midpoint of the guidance given last quarter.

Total dollar license revenues in Q3 2008 fell by 17% to $45.9 million, representing 34% of group revenues, compared to $55.1 million in Q3 2007. License revenues comprised $35.5 million from PD, up 18% sequentially, and $10.4 million from PIPD.

Year-on-year, total dollar royalty revenues in Q3 2008 were up 31% at $66.2 million, representing 49% of group revenues, compared to $50.6 million in Q3 2007. Royalty revenues comprised $55.2 million from PD and $11.0 million from PIPD (including $1.7 million of “catch-up” royalties).

Underlying royalties of $9.3 million for PIPD were up 21% year-on-year.

Sales of development systems in Q3 2008 were up 18% to $14.6 million, representing 11% of group revenues, compared to $12.3 million in Q3 2007. Consistent with previous years, development system revenues decreased sequentially in the third quarter due to seasonality.

Service revenues in Q3 2008 were up 1% year-on-year at $7.7 million, representing 6% of group revenues, compared to $7.6 million in Q3 2007.

The Processor Division (PD), formerly the original ARM, had total revenues of $90.7 million, an increase of 6.7% year-over-year and an increase of almost 12% sequentially. ARM signed 13 processor licenses in Q3. Non-mobile applications continue to be the driver for a high proportion of processor licenses, including graphics processors. Approximately, 75% of licenses are expected to be used initially in applications such as digital TV, microcontrollers, robotics and passive optical networking (PON). Mobile applications drive approximately 25% of licenses.

Year-on-year, reported PD unit shipments grew strongly in Q3 2008, buoyed by growth in automotive, Bluetooth, digital consumer, microcontrollers, storage (HDD and Flash) and Wi-Fi. Reported processor unit shipments were 1 billion in the quarter, up 44% compared to Q3 2007.

The Physical IP division (PIPD), the Artisan division established after the acquisition at the end of 2004, had total revenue of $21.4 million, an increase of 3.4% year-over-year but a drop of 4% sequentially. STMicroelectronics purchased a 40nm platform license.

The ARM7, ARM9 and ARM11 families now represent 53%, 44% and 3% of total shipments respectively. There are now six partners shipping Cortex processor-based products into a broad range of applications including consumer electronics, microcontrollers, mobile computers, networking and Wi-Fi applications.

In Q3 2008, shipments of ARM technology-based chips in mobile devices grew approximately 40% compared to Q3 2007.

In Q3 2008, shipments of ARM technology-based chips in embedded devices continued to grow strongly with microcontroller shipments up approximately 50% compared with Q3 2007.

ARM signed 14 physical IP licenses in Q3 for technologies at all process nodes from 180nm to 28nm.

PIPD royalty revenue grew 38% year-on-year and 14% sequentially to a record $11.0m, including $1.7m of catch-up royalties. Underlying royalties grew by 21% year-on-year and 7% sequentially. More than 25 companies are now reporting physical IP royalties.

In the quarter licensing revenue accounted for 34% of total revenue, royalties for 49%, development systems revenue for nearly 11% and services for 5.7%. See Table 5.


Net income for the third quarter was $22.2 million, a 30% increase from the $17.1 million in the year ago quarter and a 24% increase compared to the $17.9 million in the just previous quarter.

Warren East, Chief Executive Officer, said, “In Q3, ARM delivered the best quarterly revenue performance in its history and we continue to see strong demand for ARM's technology including long-term commitments for our physical IP technology by industry leaders.

Growth of at least 30% year-on-year in royalty revenues for both PD and PIPD provides further evidence of the increasing use of ARM's technology in a broadening range of consumer electronics products.

We are encouraged to see that the inherent operating leverage in the ARM business model, combined with sound cost discipline and the recent strengthening of the dollar against sterling, has given rise to earnings growth in Q3 of more than 20% on dollar revenue growth of 7%.

On October 29, 2008 CEVA, Inc. reported financial results for the third quarter, the period ended September 30, 2008. Total revenue for the quarter was $10.0 million, a 17% increase from the $8.7 million in the third quarter of 2007, and an increase of 1.2% from the $10.1 million in the second quarter of 2008. The $10.0 million was at the midpoint of the guidance given last quarter. License revenue for the quarter was $6 million, accounting for 59% of total revenue. This was a 12.4% increase year-over-year, but a 1% drop sequentially. Royalty revenue was $3.3 million, or 32% of total revenue. This was an increase of 51% from last year, and an 8.5% increase from the prior quarter. Services revenue was $936 thousand, a drop of 24% year-over-year, and a drop of 8.1% sequentially.

During the quarter, CEVA concluded six new license agreements, of which five are for CEVA DSP cores, platforms and software. Target applications for customer deployment are 3.5G, LTE modems, femtocells and consumer electronics. Geographically, three of the six deals are in Europe, while two are with U.S.-based companies, and one was concluded in the Asia Pacific region.

Net income for the quarter was $1.4 million, an increase of 26%, compared to net income of $1.1 million in the same quarter a year ago, and an increase of over 100% compared to $691 thousand in the just prior quarter.

Gideon Wertheizer, Chief Executive Officer of CEVA, stated, "These solid third quarter results are a direct result of our focused strategy on growth opportunities in the mobile and consumer markets. Additionally, we are encouraged by our customers' progress in growing their businesses and expanding their markets shares with their customers, such as manufacturers of handsets, personal multimedia devices, portable game consoles and smartphones."
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 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.

Mei Song, LogicVision's controller, has been promoted to Vice President, Finance and CFO and will assume the duties of Mr. Jaffe. Fadi Maamari, LogicVision's Vice President, Engineering, has been promoted to Chief Operating Officer and will assume the duties of Mr. Hayat. James T. Healy, LogicVision's President and CEO, will assume the duties of Mr. Mabry.

On October 21, 2008 Logic Vision announced financial results for the third quarter, the period ended September 30, 2008. Total revenue in the quarter was $3.2 million, an increase of almost 5% from the $3.0 million in the third quarter of 2007, and an increase of 5.1% from the $3.0 million in the second quarter of 2008. The $3.2 million Q3 revenue was at the high end of the guidance given last quarter. License revenue was $1.6 million or 50% of total revenue, an increase of 8% year-over-year and increase of 12% sequentially. Royalty revenue was $1.6 million, also 50% of total revenue, an increase of 2% year-over-year, but a drop of 1.3% relative to the prior quarter.

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