Electronics IP Industry – An August 2009 Update
by Dr. Russ Henke and Dr. Jack Horgan
In their previous twenty-four (24) quarterly issues of the 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 then-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 August 2009 Commentary, we look at the financial performances of the "G7" Electronics IP vendors during the second quarter of 2009.
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
On August 03, 2009 the Semiconductor Industry Association (SIA) reported that worldwide sales of semiconductors were $51.7 billion in the second quarter of 2009, a welcome 17% increase from the first quarter when sales were $44.2 billion. However, second-quarter sales in 2009 were down by 20% from the $64.7 billion recorded in the like period of 2008. Six months year-to-date 2009 sales of $95.9 billion were 25% below the first six months of 2008, when sales were $127.5 billion.
SIA President George Scalise said, “The fourth-consecutive monthly increase in sales is one indicator the industry is returning to normal seasonal growth patterns.”
He noted that industry analysts have recently become more optimistic in their forecasts for key demand drivers. “Consensus estimates for unit sales of PCs are now in the range of minus 5% to flat compared to 2008, whereas earlier forecasts were projecting year-on-year unit declines of 9 to 12%. In cell phone handsets, analysts now believe the unit decline will be in the range of 7 to 9% compared to earlier forecasts of a decline of around 15%. PCs and cell phones account for nearly 60% of worldwide semiconductor consumption,” said Scalise.
According to iSuppli worldwide semiconductor revenue in Q1 2009 declined to US$44.3 billion, down 18.8% from US$54.5 billion in Q4 2008, and a decline of 33.8% from US$66.8 billion in Q1 2008. Revenue was down 36.2% from the start of the present sharp downturn after Q3 2008. Even prior to the “official” start of the recession, the semiconductor industry experienced an extended period of lethargy. Quarterly semiconductor revenue peaked six quarters ago in Q3 2007. Note that Figure 1 below indicates a forecasted uptick.
On June 06, 2009 MoSys, Inc. announced the acquisition of substantially all of the assets and business of privately held Prism Circuits, Inc., a profitable supplier of high data rate parallel and serial interface (I/O) IP.
On July 28, 2009 Virage Logic announced it had extended its advanced IP technology leadership to the 32/28-nanometer process node with the tape out of a product test chip with multiple IPs optimized for a high performance application for an early adopter customer. The product test chip advanced power management and at-speed test capabilities to address the power and yield challenges of 32/28nm and smaller geometries. In addition to the product test chip, Virage Logic also taped out multiple 32nm test chips at leading foundries.
On August 17, 2009 Virage Logic announced its intent to acquire publicly-held ARC International plc, a provider of consumer IP to OEM and semiconductor companies globally. The proposed acquisition would expand Virage Logic's ability to serve the global semiconductor market by complementing Virage Logic’s existing portfolio of physical IP and standards-based advanced interface IP with ARC’s processor IP, a necessary component for complex System-on-Chip (SoC) integrated circuits. ARC enjoyed approximately $24 million in revenue for the year ended June 30, 2009 and reports over 150 customers. The proposed all-cash acquisition by Virage Logic values ARC at an equity value of approximately £25.2 million ($41.0 million). The transaction is expected to close by December 31, 2009. The offer is subject to certain limited closing conditions.
On August 03, 2009 MIPS Technologies, Inc. announced it had met a key milestone in driving the Android platform beyond mobile handsets. Just two months after announcing its port of the Android platform to the MIPS architecture, the company was making the source code publicly available. MIPS Technologies also initiated an Early Access Program for a small group of key customers who will have access to specific hardware and code optimizations before they are publicly available.
On August 10, 2009 CEVA, Inc. announced that Sunplus Technology Co. Ltd., said to be one of the world's premier consumer electronics IC designers, had licensed the CEVA-TeakLite-III DSP core for its next generation Set-top-boxes, HDTV and Blu-ray Disc chipsets.
How did the Electronics IP G7 perform in the Second Quarter of 2009?
Needless to say, Q2 2009 was not a good quarter. On the IP revenue front, Table 2 below reveals that the G7's combined Q2 2009 revenue performance was $171 million, down almost -21% from the second quarter of 2008 and down over -13% from the first quarter of 2009. MIPS and MoSys suffered the largest year-over-year revenue declines approaching -40%. ARM, Virage Logic and Rambus had revenue drops around -20%. While still slightly negative, LogicVision delivered the best year-over-year performance at -1.4%.
On a sequential basis, only Virage Logic saw a revenue increase at +8.1%. MIPS endured the steepest decline at -44%. MoSys suffered a drop of more than -20% and ARM dipped nearly -13%. CEVA, LogicVision and Rambus saw percentage drops in the low single digits.
Figure 2 below provides a bar graph of each vendor's revenue for Q2 2008, Q1 2009, and Q2 2009 in sequence.
Based on Q2 2009 revenue, ARM continues to dominate with 62% of total revenue with Rambus a distant second at 16% relative market share. MIPS was in third place at 7.4% with Virage Logic close behind at 7%. See Figure 3.
Relative to earnings, there are lots of red numbers to report. Table 3 reveals that G7 IP Providers accumulated a combined Q2 2009 net loss of $25.2 million. Nevertheless, this was a considerable improvement from the combined loss of $236 million in the year ago quarter and a mild improvement from the combined loss of $32.5 million in the just prior quarter. However, only ARM and CEVA delivered net gains in Q2 2009.
While still in negative earnings categories in Q2 2009, the biggest year-over-year earnings “improvements” came from MIPS and Rambus. This was primarily because both recorded significant (and esoteric) “one time” earnings events in the prior year. In the second quarter of 2008, MIPS recorded a $103.1 million “impairment of goodwill and intangible assets,” of which $101.4 million was associated with the Analog Business Group (Chipidea). During the second quarter of 2008, Rambus recorded a “valuation allowance of $130.5 million against its net deferred tax assets to fully reserve previously recorded tax benefits generated from its pre-tax losses in the U.S. Pursuant to the Statement of Financial Accounting Standard 109.” Got that?