December 22, 2009
Virage Logic – On the Move!
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Russ Henke - Contributing Editor

by Russ Henke - Contributing Editor
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After several quarters, the writer asked his associate Dr. Jack Horgan to join him in co-authoring these quarterly EDA and MCAD Commentaries. Since both Jack and the writer had each enjoyed long, mostly separate corporate career experiences in multiple companies involved with both worlds of EDA and MCAD/MCAE, the effort for us each quarter seemed natural and clear-cut. Indeed, we have now published over 25 quarterly commentaries in each category since then (2003 through the end of 2009). 

Here Come the IP Vendors:

Soon after launching the quarterly Commentaries on EDA and MCAD/MCAE, the folks from IBSystems asked us to begin similar quarterly reports on the small but emerging field of

electronics intellectual property (IP). So we dutifully made up a list of then-current publicly-traded Electronics IP vendors and began reporting on their quarterly financial performances as well. The initial list of public IP entities chosen in 2003 consisted of
ARM, Artisan, CEVA, LogicVision, MIPS, MoSys, Rambus and
Virage Logic.

We further noted at the time (and since), that the Big 3 EDA vendors Cadence, Mentor Graphics and especially Synopsys, were/are also involved in various ways with electronics IP. However, we did not report very often in the quarterly Electronics IP Commentary on the Big 3’s IP activities because of the differences in how each Big 3 company arbitrarily chose and still chooses to define and selectively disclose the revenue components of its respective IP businesses. Further, none of the Big 3 EDA vendors unbundles profitability of its respective IP-related business

lines, precluding IP earnings’ comparisons.

Additionally, while we have unfailingly reported the financials of the selected, publicly-traded electronics IP vendors each quarter, we seldom plunged too deeply into the details or history of the overall IP niche itself. But this IP niche continues to grow and our list of selected IP vendors now represents some $800 million in annual revenues. This IP revenue amount has risen to about 25% of the “standard” EDA combined annual revenue of the five EDA vendors we continue to cover regularly in our quarterly EDA Commentaries (Altium,

Cadence, Magma, Mentor Graphics, and Synopsys).
Moreover, IP vendors frequently become very active in making news via acquisitions, and we are again seeing larger EDA vendors buying up IP entities (e.g. MGC acquiring LogicVision in August 2009).

So the time has come to delve more deeply (beyond financials alone) into the niche 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 Electronic Design Automation”.

Electronics IP Vendors -- Creatures of the Nineties:

For the most part, the electronics IP niche is less than two decades old, with only MIPS having been founded before 1990. (While MIPS was founded in 1984, it focused for many years on building a RISC processor within Silicon Graphics before moving toward the IP game).

Here are the founding dates
in chronological order of the members of the Group of 8 IP vendors originally selected in 2003 for reporting in the quarterly Electronics IP Industry Commentary. Note that Virage Logic
is the “youngest” member of the pack:

* The all-stock MGC August 2009 deal represented about a 44% premium for LogicVision shareholders. (By the way, late in 2008, Virage Logic offered to buy LogicVision for $1.05 per share, in cash, which represented a 114% premium to LogicVision’s then 49-cent per-share price that existed the day before the unsolicited offer was made. That deal was later

called off by Virage Logic in the wake of a “poison pill” adopted by LogicVision’s board).

Electronics IP Group of Six Listed by Revenue Run Rate -- Virage Logic’s Position:

When the post-acquisition list of the IP Group of Six is arranged by current revenue run rate, the size dominance of UK-based ARM is clearly evident:

While Virage Logic has been holding its own in the lower tier of three, we observe that Rambus and ARM (in the first tier) are currently 2.1 times and 9.4 times larger revenue-wise, respectively, than Virage Logic, based solely on annual run rate for calendar Q3 2009.  
(As stated earlier, Virage Logic’s revenue is predicted to increase dramatically in fiscal 2010 due to its significantly broadened product portfolio. Recall from the foregoing that in November 2009, Dr. Shubat predicted that for the first quarter fiscal 2010 (the current quarter), Virage Logic is projecting revenues of
$18.5 million to $19.0 million). We will watch for final results to be published next month
, for as we shall see, this Virage Logic forecasted performance would shake up the past revenue size hierarchy as set forth above.

But continuing to look in the rear view mirror for the moment, it may be helpful in positioning
Virage Logic in the array of similar IP vendors, to compare both revenue and earnings performances over a series of recent quarters. Revenue for calendar Q3 2009 is compared to Q2 2009 and Q3 2008 in the table below, taken from the writer’s
Electronics IP Commentary first posted on on November 10, 2009:

Notice that ARM continued to dominate the group, with 64% or $123 million of the Q3 2009 group total of $192 million. Virage Logic was a distant fourth (behind ARM, Rambus and MIPS) with only 6.8% of the calendar Q3 2009 group total. So based on Q3 2009 revenue, Virage Logic was about a tenth the size of ARM.

Next, the Figure below provides a bar graph of each vendor's revenue for calendar Q3 2008, Q2 2009, and Q3 2009 in chronological sequence.  A Pie Chart Figure follows for Q3 2009.

ARM continued to dominate with 63% of total revenue in Q3 2009, with Rambus a distant second at 15% relative market share.  MIPS was in third place at 8%, with

Virage Logic close behind at ~7%.

Relative to

earnings, the
Table below reveals that combined, the G6 IP Providers were again in
red ink, reporting a collective Q3 2009 net loss $22 million, compared to net losses of $18.7 million and $24.9 million in the year ago and the quarter ago periods, respectively.  Rambus accounted for the bulk of the G6 combined loss in all three periods.  ARM, CEVA and MIPS managed net earnings in Q3 2009, while the other three suffered net loses, including
Virage Logic .

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-- Russ Henke, Contributing Editor.


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