Electronics IP Industry - An August 2006 Update
by Dr. Russ Henke and Dr. Jack Horgan
In their September 2003, December 2003, February 2004, May 2004, August 2004, November 2004, February 2005, May 2005, August 2005, November 2005, February 2006 and May 2006 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 August 2006 Commentary, we look at the financial performances of the “G7” Electronics IP vendors during the second quarter of 2006.
ARM Holdings plc
MIPS Technologies, Inc.
Virage Logic Corporation
San Jose, CA
San Jose, CA
Mountain View, CA
Los Altos, CA
For the "G7: companies above, we assume that all of their revenues are Electronics IP sales and directly related IP services.
Recent Electronics IP News Highlights
Based on preliminary registration data released by the July 24 - 28, 2006 43rd Design Automation Conference (DAC), 11,352 people participated in this year's event, making this year's total attendance the highest since 2001. These preliminary DAC attendance numbers broken out by category were: 3,231 registered conference attendees; 3,421 registered exhibit attendees; and 4,700 total exhibitors, visitors and guests. This year's DAC was held in San Francisco.
On August 3, 2006 the Semiconductor Industry Association (SIA) reported that worldwide sales of semiconductors totaled $19.6 billion in June, up over 9% from June 2005. SIA's Global Sales Report (GSR), a three-month moving average of sales activity, is shown in the following Table 1.
At least 34 states are expected to file a lawsuit against seven semiconductor makers (Infineon Technologies AG; Hynix Semiconductor, Inc.; Micron Technology, Inc.; Mosel Vitelic, Inc.; Nanya Technology Corp.; Elpida Memory, Inc.; and NEC Electronics America, Inc), accusing the companies of overcharging their customers for computer DRAM memory chips.
California Attorney General Bill Lockyer said, "The defendants in this case conspired to rig the US market for this essential computer product, working together to keep prices artificially high. In the process, they victimized individual consumers, governmental agencies, schools and taxpayers. This lawsuit seeks compensation for those victims and to ensure the defendants never again violate fundamental tenets that make our economy work properly."
On August 2 the FTC (Federal Trade Commission) ruled that Rambus behaved deceptively when it obtained patents on memory chip technology in the 1990s without telling a memory standards-setting body (JEDEC Joint Electron Device Engineering Council) that it was doing so. This ruling overturns a 2004 FTC ruling. The FTC unanimously ruled that Rambus violated antitrust laws when it failed to tell memory chip makers that it had applied for patents on technologies for speeding up memory chips that the industry had chosen to use in everything from personal computers to set-top boxes. This could result in a reduction of royalties form the relevant patents. Shares of Rambus fell 25% on the news.
On July 27 Rambus had announced that senior vice president, secretary and general counsel John Danforth will leave these positions and assume a new role within the Company, effective immediately. Mr. Danforth will focus on certain of the Company's litigation matters as senior legal advisor. Robert Kramer, deputy general counsel, will serve as acting general counsel until the general counsel role is filled.
On July 24 AMD announced that it would acquire ATI, a leader in the design and manufacture of innovative 3D graphics, PC platform technologies and digital media silicon solutions. With fiscal 2005 revenues of US $2.2 billion, ATI has approximately 4,000 employees in the Americas, Europe and Asia. AMD will acquire all of the outstanding common shares of ATI for a combination of $4.2 billion in cash and 57 million shares of AMD common stock for an estimated combined value of $5.4 billion.
How did the Electronics IP G7 perform in the Second Quarter of 2006?
On the revenue front, Table 2 below reveals that the G7's combined Q2 2006 performance was $216 million, a healthy increase of 15.5% from the $186 million in Q2 2005, and a modest increase of 4.3% from the $206 million in the first quarter of this year. MIPS and Virage Logic led the pack with impressive 28% increases year-over-year, with Rambus a close third at 22%. MoSys had the largest year-over-year decline at -24%. Ceva was the only other decliner at -12%. On a sequential basis, MoSys was the only decliner at -33%. LogicVision was the sequential growth leader at 18%.
Figure 1 below provides a bar graph of each vendor's revenue for Q2 2005, Q1 2005, and Q2 2006 in sequence. ARM is the dominant player with 56% of the total. Rambus is in second place at 23%. MIPS and Virage Logic are next with 8% and 7%, respectively.
As shown in Table 2 below, in Q2 2006 the combined earnings of the G7 were $24.8 million, not including Rambus who did not report earnings. Year-over-year ARM had the largest earnings increase in both absolute and relative terms. MIPS was the only other IP vendor to report a year-over-year earnings increase. Ceva, LogicVision, MoSys and Virage Logic had a drop in earnings. On a sequential basis, MoSys and Virage Logic had declining earnings. ARM and MIPS were the only firms with both net profit and increased earnings in Q2 2006.
Q4 2005 Results of Individual Electronics IP Providers: