Electronics IP Industry View - A May 2004 update

During the quarter, Virage signed 10 new royalty agreements bring the total number of agreements to over 70. There were 9 new licensing agreements, bringing the total number of agreements to 55.

Stock Prices of the G8 IP Providers

The combined stock prices for the G8 rose 92% over the last twelve months and almost 2% over the last quarter (Table 4). The year's growth is almost double the Nasdaq's performance and roughly triple the other leading stock indexes (Table 5). Ceva and MIPS rose over 200%, while ARM and LogicVision each rose ~167% over last year. The weakest year-over-year rise was Artisan at 38%. On a quarter-over-quarter basis, MoSys rose 52% while only Artisan approached double digits. All the others save MIPS dropped in value during the quarter by single digits. The stock indices all dropped a few percentage points in Q1 2004.

Table 4 Stock Information on the Group-of-8 (G8)

Table 5 Stock Market Major Indices

Figure 3 Stock Prices of the Group-of-8 (G8)

Forecast Guidance from Individual IP Providers

ARM guidance was very general. “The robust sales pipeline for ARM IP, comprising opportunities for licensing ARM11 family products, other recently introduced products and more mature products gives us confidence that licensing revenues will continue to grow in dollar terms. The positive momentum behind royalty revenues is expected to continue in the medium term although royalty revenues in the second quarter may not be up on the first quarter due to the strong seasonal shipments reported by our partners in Q4 2003 (royalty revenues are reported one quarter in arrears),” said a company spokesperson.

Artisan guidance for the next quarter is for license revenue of $16.1 million and net royalty revenue of $5.8 million for a total of $21.9 million roughly flat with respect to the current quarter and up from the $20 million for the corresponding period last year. Net income is forecast at $3.5 million to $3.7 million, a 25% drop from the current quarter but a 250% rise from the same period last year. For the fiscal year ending September 2004, the forecast for total revenue is $90 million, a 25% growth over prior fiscal year and for pro forma EPS, $0.62 to $0.64 versus $0.38 last year.

For guidance for the next quarter Ceva CFO Christine Russell said there would be moderate revenue growth while expenses and gross margins would remain stable. For fiscal 2004 they expect revenue of $40 million versus $36.8 million in 2003. This is ~10% growth but the firm expects DSP business to grow 20%. The difference is due to the annual revenue loss of ~$4 million in discontinued products.

For the second quarter, LogicVision expects revenues to be in line with Q1 revenues of $2.2 million. Net loss is expected to be in the range of $2.5 million to $2.75 million. A company spokesperson stated,"We currently have a number of customer evaluation projects in process and expect to see the results of these customer assessments during the next two quarters. However, as we have discussed, selling cycles are often lengthy, customer order timing is not predictable and once an order is booked, there can be a time lag before any revenue recognition takes place.”

MIPS guidance for total revenue in the next quarter is a sequential growth of 3% to 5% or about $13.1 million.

MoSys expects revenues in the second quarter to be in the range of $3.8 million to $4 million based upon booking business on a contract basis. The company projects operating expenses between $3.8 million and $4 million excluding legal fees.

For guidance, Rambus expects revenue in Q2 to be in the range of $32 to $35 million and operating costs and expenses to be in the range of $24 to $28 million. Litigation expenses are projected to be in the range of $5 to $7 million. Other Income is expected to be up $2 to $3 million due to sublease of former facility and possible sale of remaining Tesera equity.

For guidance Virage Logic expects revenue in the next quarter to be in the range of $13.5 million to $14.0 million, to continue to remain profitable and to have net income of $0.01 to $0.02 per diluted share. This compares to $13 million in revenue and $0.01 for the quarter just completed and $9.6 million in revenue and a net loss of $1.6 million for Q3 F2003. "We are pleased to have achieved our goal of returning to profitability for the second quarter while continuing to invest in developing new products," said Adam Kablanian, Virage Logic's president and chief executive officer. "During the second quarter, we experienced continued customer momentum for our 90-nanometer product offering with additional design start wins and customer adoption of our Self-Test and Repair (STAR) Memory System(TM) remained strong. In recent months, we have also expanded our process technology footprint to include additional foundry partners in order to broaden our market opportunity while giving our customers increased flexibility in producing their designs."

Table 6 Quarterly Forecasts of Group-of-8 (G8) ($ millions)

* The forecast figures listed in Table 6 for ARM and Ceva are the authors' interpretation of qualitative company statements. Note that only MoSys is forecasting double digit growth. Overall, next quarter appears to be forecast only 2% higher than the current quarter.

On May 10, 2004, all three of Wall Street's main market gauges fell more than 1 percent to new lows for the year, and the Dow Jones industrial average (DJIA) fell below 10,000 for the first time since mid-December 2003. As of May 10, the DJIA was off 4.4 percent for the year while the Nasdaq composite index was down 5.4 percent.

Comments on the IP business of Cadence, Mentor Graphics and Synopsys
The overall Top 3 EDA Vendors are also important players in the IP providers' niche. For example, in previous IP articles we mentioned that Dataquest recognized Synopsys' IP and IP-related revenues for 2002 (~$73 million) to be deemed sufficient for Dataquest to characterize Synopsys as the Number 3 IP player worldwide. Mentor Graphics' recent annual IP revenues from its Inventra Division are estimated to be in the $30 to $35 million class. Cadence, which does not explicitly appear in Dataquest's list of the top ten IP providers at all, nevertheless chooses to define a revenue reporting category called, “IP Creation”, in which Cadence reports as much as $293 million of IP-related business in 2001, $260 million in 2002, and $109 million in the 1H 2003. If this Cadence “IP Creation” revenue were aggregated the exact same way the revenues of, say, ARM Holdings, plc were aggregated, then Cadence would rank right up there neck and neck with ARM. 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 business. Further, none of the TOP 3 EDA Vendors unbundles profitability of its respective IP-related business lines, precluding IP earnings' comparisons.

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