In their September 2003 and December 2003 Electronics IP Industry Commentaries, the authors examined the recent history and future outlook of the remarkable phenomenon of electronic 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 (EDA). We had arbitrarily selected eight (8) publicly-traded companies (hereinafter known as the "Group-of-8" or "G8"), as representative of the current state of the IP industry. In this February 2004 commentary, we look at the performance of these same vendors during the fourth quarter and the calendar year 2003.

 

Group-of-8 (G8):

 

	ARM Holdings, plc		Cambridge, U.K.
	Artisan Components, Inc.		Sunnyvale, CA
	Ceva, Inc.		San Jose, CA
	LogicVision, Inc.		San Jose, CA
	MIPS Technologies, Inc.		Mountain View, CA
	Monolithic System Technology, Inc.		Sunnyvale, CA
	Rambus, Inc.		Los Altos, CA
	Virage Logic Corp.		Fremont, CA

 

 

For the G8 companies above, we will assume that all of their revenues are IP and directly related IP services.

 

IP providers today supply an incredible array of hard and soft reusable cores, design blocks, and integration platforms for a broad range of digital applications, such as DSP processors, encoders/decoders, bus interfaces, micro-processors, memories, micro-controllers, and related data communication cores. Moreover, "soft cores" are usually available in Verilog and/or VHDL, which can be synthesized and targeted to almost any semiconductor foundry process. Most available soft cores and IP blocks are fully documented, pre-tested, and verified, and support the software tool flows from most leading EDA vendors. The value proposition for prospects is faster time to market, less technological risk, and lower development and testing costs.

 

Customers of IP providers include independent manufacturing facilities or foundries, integrated device manufacturers, application specific integrated circuit manufactures, system manufacturers and fabless integrated circuit companies. IP vendors offer non-exclusive licenses, while retaining ownership of their design intellectual property, including that developed under contract engineering services. The sources of revenue are licensing fees, maintenance and support fees, engineering services and royalties. Royalties can be on a per-integrated circuit or per-wafer basis. A typical royalty might be 8 cents a chip. Since chips containing IP are found in PCs, cell phones, consumer entertainment and so forth, the volume can be in the tens of millions. Royalties are received when chips incorporating IP are actually manufactured. Consequently, there can be a considerable time lag between the time the IP is delivered and the time royalties are received, if at all. Royalty revenue is recognized in the quarter in which a report is received from a licensee detailing the shipments of products incorporating intellectual property components, which is typically in the quarter following the sale of the licensee's product to its customer. Up front fees including non-cancelable pre-paid royalties are included in licensing fees.

How did the G8 perform in the fourth quarter of 2003?

On the revenue front, the combined Q4 2003 performance was up 12.4% sequentially and 16% year over year. The percentage winners year over year were Ceva, Artisan Components and Rambus. Ceva is an anomaly because the company was formed in November 2002 by combining two entities, only one of whose revenues contributed during the fourth quarter of 2002. Q4 2003 decliners were led by MoSys, followed by LogicVision and Virage Logic. MoSys suffered a major drop in royalties from Nintendo's Game Cube. On a sequential basis, only MoSys had a drop in revenue, while only ARM and Rambus had increases over 10%. See Table 1 and Figure 1.

Company	Last QTR Revenue	Prev QTR Revenue	Last vs. Prev QTR	Comparable 2002 QTR	Last QTR vs. Comparable QTR
ARM (£)	£33,952	£31,728	7.0%	£32,312	5.1%
ARM ($)	$57,039	$50,448	13.1%	$50,407	13.2%
Artisan Components	21,353	19,489	9.6%	14,642	45.8%
Ceva	9,604	9,302	3.2%	5,663	69.6%
LogicVision	3,712	1,481	151%	2,031	83%
MIPS	10,688	10,413	2.6%	10,378	3.0%
Mosys	3,351	3,499	-4.2%	7,855	-57.3%
Rambus	32,368	28,560	13.3%	25,704	25.9%
Virage Logic	10,860	9,903	9.7%	11,565	-6.1%
Total	43,228	38,463	12.4%	37,269	16.0%

Table 1 Quarterly Revenue of the Group-of-8 (G8) IP Providers

 

Figure 1 Quarterly Revenue of the Group-of-8 (G8) IP Providers

For the quarter of 2003, ARM had the largest market share at 36% followed by Rambus at 21% and Artisan at 14%. See Figure 2.

 

 

Figure 2 IP Relative Market Share

Company	Last QTR Earnings	Prev QTR Earnings	Delta Last vs. Prev	Comparable 2002 QTR	Delta Last vs. 2002
ARM (£)	£3,729	£6,963	£3,234	£3,361	£368
ARM ($)	6,265	11,071	(4,806)	5,243	1,022
Artisan	3,709	2,538	1,171	2,165	1,544
Ceva	(9,571)	(1,134)	(8,437)	(24,421)	14,850
LogicVision	(1,684)	(3,342)	1,658	(4,179)	2,495
MIPS	377	(5,736)	6,113	(14,259)	14,636
MoSys	(415)	(249)	(166)	4,106	(4,521)
Rambus	8,617	5,007	3,610	5,529	3,088
Virage Logic	(359)	(687)	328	(385)	26
Total	6,939	7,468	(529)	(26,201)	33,140

Table 2 Quarterly Earnings of the Group-of-8 (G8) IP Providers

In Q4 2003, the combined earnings of the G8 dropped $529 thousand or -7% sequentially. The most improved were MIPS who went from a loss of $5.7 million to a small gain of $377 thousand and Rambus up $3.6 million or 72%. On a year-over-year basis the G8 improved by $33 million due mostly to dramatic shifts by MIPS and Ceva. See Table 2.

Individual IP Providers

On January 27, 2004, Arm Holdings PLC reported financial results for the fourth quarter and for the year ending December 31, 2003. As a U.K.-based company, Arm reports in British Pounds Sterling. On sequential basis license revenue decreased marginally to £12.9 million, but royalty revenue at £12.8 million was up 64% year over year due to record unit shipments. Product revenue was up 5% sequential, while service revenue rose 22%. Total revenue for the quarter was £33 million, up 7% on a sequential basis and 5% year over year. All growth comparisons are more favorable when revenues are expressed in dollars instead of pounds.

Net income for the quarter was £3.7 million versus nearly £7 million the prior sequential quarter and £3.4 million for the same period a year ago. Excluding considerations for foreign currency adjustment and an unrealized holding gain/loss, net income for the quarter was nearly £6 million compared to £4.8 million and £3.6 million sequentially and year over year, respectively.

With approximately 90% of ARM's revenues being earned in U.S. dollars and costs being predominantly sterling denominated, the exchange rate had a negative impact of approximately £1.9 million on ARM's Q4 2003 revenues when translated into sterling.

 

Warren East, Chief Executive Officer, said, "After resetting our cost base at the start of Q4 2002, 2003 has been a year of operational stability and gradually improving financial performance. Our decision to maintain high levels of research and development expenditure during the protracted industry downturn has enabled us to introduce a number of new products in the year based on the innovative technologies we have developed. These are already driving license revenue and underpin our confidence for revenue growth during 2004. "

 

Tim Score, Chief Financial Officer, added: "Careful management of our cost base has contributed to sequential improvements in profitability and good cash generation throughout the year. The cash generative nature of ARM's business model enables us to address the significant opportunities for ongoing investment in future growth alongside the introduction of annual dividend payments." 

ARM also announced, on January 26, 2004, an agreement to acquire Triscend Corp., a company specializing in ARM core-based microcontrollers, for cash consideration of $13.2 million plus further cash consideration of up to a maximum of $1.8 million.

On January 26, 2004, Artisan Components Inc reported the results of 1QF2004, the period ending December 31, 2003. Total revenue was $20.1 million, up nearly 46% year over year and up nearly 10% sequentially. Royalty revenue was up 235% year over year and 195% sequentially, due to a royalty audit of licensees, higher production volumes form manufacturers, and some firms reaching caps of royalty backcredits. Non-recurring royalty accounted for 46% of royalty revenue. There are 16 royalty-contributing firms, up 2 from the prior quarter. On a geographic basis, Taiwan accounted for 46% of revenue, North America 21%, Japan 14%, and Singapore 11%. Four customer firms each accounted for more than 10% of Artisan's revenue.

Net income for the fourth quarter of 2003 was $3.7 million, up 71% year over year from $2.1 million, and 46% sequentially from $2.5 million.

Mark Templeton, president and CEO of Artisan Components, said during the company's conference call, "We are getting the year off to great start. We're very excited about number of new products we were able to accelerate during the quarter. As we said in last quarter's conference call, job one was to broaden the product portfolio. As the quarter developed we made the decision to push on that objective so that we could take advantage of the expected industry upturn. Stronger than expected royalties enabled us to focus more of the company's resources on new product development while still achieving financial objectives. Over the next few weeks we will be staging these new product announcements and rollouts. "Several early adopters have already placed orders." Templeton declined to comment further, so as not to upstage upcoming marketing efforts.

Note: A license signing alone is not a revenue event for Artisan. The technology must be qualified for each manufacturer. Revenue is recognized on a percentage-completed basis over several periods. The agreements have a credit-back provisions such that a certain percentage of royalties are credited back to licensee toward future program with Artisan. Credit-backs are typically capped at the full amount of the original license per distinct processor node. When a cap is reached, 100% of production royalties become revenue.

On January 27, 2004,Ceva (formerly known as ParthusCeva) reported results for the fourth quarter and the year. Total revenues were $9.6 million, a 3.2% sequential increase and a 70% increase year over year. Licensing revenues increased to $6.6 million, compared with $6.5 million in the third quarter. Royalty revenues increased to $1.4 million, compared with $1.2 million in the third quarter.

"The fourth quarter was very successful on many fronts. We achieved our best ever performance in DSP licensing and again recorded good growth in royalties, which grew 23 percent over the third quarter," said Chet Silvestri, president and CEO of CEVA. "In the fourth quarter we also launched our industry-leading CEVA-X DSP architecture, which we have now licensed to two industry leaders in the wireless market. In addition, our realignment program is resulting in a more cost-efficient company, positioned to expand our leadership in the high-growth DSP market".

CEVA implemented a realignment program in the fourth quarter of 2003 to eliminate non-strategic products, focus the organization on DSP technologies, and position the company for profitability in 2004. As a result, the company incurred a fourth quarter restructuring and impairment of assets charge of $9.1 million, of which $3.1 million was a cash charge. Net loss in the fourth quarter was $9.6 million, compared with a net loss of $1.1 million in the prior quarter and a loss of $24.4 million in the fourth quarter of 2002. Excluding the restructuring and impairment of assets charge, net loss in the fourth quarter was $500,000. Year over year comparisons must take into account that Ceva was formed through the combination of Parthus Technologies plc and ParthusCeva on November 1, 2002. Financial information prior to that date is limited to the DSP cores licensing business that was part of DSP Group, Inc. One-time charges related to the formation of Ceva and subsequent restructuring amounted to $22 million.

On December 16, 2003, Chet Silvestri, CEO of CEVA said, "Through an extensive strategy review, we have evaluated all our business units in light of both their ability to enhance our DSP offerings and to contribute to profitability. As a result, we have eliminated some non-strategic products and realigned business structures, resulting in a more cost-efficient organization focused on DSP, one of the semiconductor industry's fastest growing markets. With these changes, we are confident that we can achieve our corporate goals of growth, profitability, and leadership in DSP."

On January 26, 2004, LogicVision reported results for its fourth quarter and full year. Revenues for the quarter were $3.71 million, a 150% improvement over the $1.48 million reported in the third quarter of 2003 and an 83% improvement over the revenue from a year ago. Two customers each accounted for more than 10% of LogicVision's revenue. Net loss for the fourth quarter was $1.7 million, or a loss of $0.11 per share, a significant improvement from a net loss of $3.3 million in the third quarter and a net loss of $4.2 million a year earlier. Headcount dropped from 105 to 89.

 

Dr. Vinod Agarwal, executive chairman and chief strategist of LogicVision commented: "We are pleased to announce that in the December quarter, in addition to other orders, we signed a multi-million dollar licensing agreement with a leading Asian consumer electronics company. - this was the second large contract with a key account that we signed in 2003. We believe it further validates our total solution sales approach and the value-add of LogicVision's proprietary embedded test technology, which delivers key benefits in yield improvement, quality enhancements, lower cost of test and faster time to market."

 

During the fourth quarter, LogicVision also announced the addition of James Healy as president and chief executive officer from Spirox, the distributor for LogicVision products in Greater China.

 

On January 21, 2004, MIPS Technologies reported its results for 2QF2004, the quarter ending December 31, 2003. Total revenue was $10.7 million, a 3% rise compared to $10.4 million for both the previous quarter and the same quarter a year ago. Royalties were $5.9 million, a sequential increase of 16.5% and a rise of 43% compared to $4.1 million in the same quarter a year ago. Contract revenue was $4.8 million, a sequential decrease of 10.6% and a drop of 24% compared to the comparable period in fiscal 2003.

Net income for the quarter was $477,000 compared to a net loss of $5.7 million the previous quarter and a net loss of $14.2 million for the same period one year ago. These losses included restructuring charges of $3.3 million and $7.6 million respectively. As a result of restructuring in prior quarters, R&D expense for the quarter was down $3.6 million and S&M expense was down $1.3 million year over year. Net income per share on a diluted basis for the second quarter of fiscal 2004 was $0.01 compared to a net loss per share of $0.36 for the same quarter a year ago.

"MIPS Technologies has exceeded its goal of reaching breakeven on an operational basis and is pleased to report a profit for the second fiscal quarter," said Casey Eichler, chief financial officer for MIPS Technologies. "Solid quarter-on-quarter and year-over-year growth in royalties has helped return a profit to stockholders with an EPS of $0.01. We became cash flow positive in the quarter adding $4.8 million to our cash balance. For the remainder of the fiscal year, we will continue to manage expenses in line with revenue expectations."

"MIPS' December quarter was the strongest quarter we have seen in nearly two years," said John Bourgoin, president & CEO. "Our royalty revenues are benefiting from our broadening base of licensees and generally improved business conditions, and our licensing efforts generated more new licenses than in any quarter in our history. An important element of our licensing success was the first agreements for our 24K core family. We expect to make the first 24K core generally available this quarter to a broad base of customers. I am pleased that we executed well to our internal objectives including our expense goals and the 24K core product line, thereby strengthening both our Q2 financials and our prospects."

On January 28, 2004, six days after issuing a warning about a reduction in its revenue outlook, MoSys, Inc (Monolithic Systems Technology, Inc.) reported its results for the fourth quarter and the year ending December 31, 2003. Revenue for the quarter was $3.35 million, a sequential decrease of 4%, but a drop of 57% year over year. All aspects of the business were down substantially. The major contributing factor was reduction in royalties from Nintendo's Game Cube from $14.3 million in 4Q02 to $6.9 million. TMSC and Sony each accounted for 17% of total MoSys revenue.

Net income for the quarter was a loss of $415 thousand, which was worse than the loss of $249 thousand the prior quarter and a dramatic shift from the positive net income of $4.1 million in the fourth quarter of 2002. The difference was almost entirely due to reduced revenue, specifically from Game Cube royalty. Despite the loss MoSys was able to generate $1.5 million in positive cash flow.

"Our fourth quarter results were impacted by the schedule delays of new design projects by our customers," commented Dr. Fu-Chieh Hsu, CEO of MoSys. "In fact, R & D spending by our customers had remained cautious throughout 2003 which has resulted in a lower level of new design projects and fewer existing products being placed into production than we had anticipated at the beginning of the year. However, we are beginning to see an improvement in the funding for new projects, as evidenced by the new orders generated during the fourth quarter. We anticipate recognizing the revenue from these new licenses during 2004."

Also on January 28, 2004, Mosys announced an agreement to license its 1T-SRAM-Q technology to Fujitsu Ltd., the largest Japanese ASIC vendor, for use in providing high-density embedded memory solutions for its SoC designs in consumer applications, including digital cameras and video camcorders. This announcement followed an earlier MoSys announcement of an agreement with Agilent Technologies Inc.

CEO Hsu commented, "During 2003, we continued to expand relationships with existing customers and entered into license agreements with several significant new customers. Working closely with our existing and new foundry partners, we have broadened the range of standard logic process alternatives available for our licensees. We have entered 2004 with significant momentum and a robust pipeline of new and existing design projects."

On January 15, 2004, Rambus Inc reported its financial results for the fourth quarter and for the year ending December 31, 2003. Revenue for the quarter was $32.4 million, up 13% sequentially and 26% year over year. Contract revenue was up 15% sequentially and a dramatic 234% due to signings for XDR memory interface and Redwood interface technologies. Royalty revenue was up a much more modest 13% sequentially and 14.1% year over year. Net income for the quarter was $8.6 million (27% of revenue), compared to $5.5 million (21.5% of revenue) in the same period last year and $5.0 million (17.5% of revenue) in the previous quarter. Earnings per share for these quarters were $0.08, $0.06 and $0.05 respectively.

 

"Rambus had excellent performance and delivered on a number of important customer commitments throughout the fourth quarter," said Geoff Tate, CEO of Rambus Inc. "We were pleased with Toshiba's announcement that samples of their XDR DRAM chip (the world's fastest DRAM memory device at data transfer speed of 3.2 GHz) are now available. Our PCI Express IP solutions continue to gain momentum in the marketplace. Finally, we completed the acquisition of high speed signaling assets from Velio which we expect will enable even more solutions for customers in the future."

 

On December 24, 2003, Rambus announced the acquisition of certain high-speed signaling assets from Velio Communications for $13 million in cash. These assets included related patent portfolio, licensing business and key engineering talent (14 people). Rambus plans to integrate these assets into its RaSer product line. This should contribute to a broader product portfolio and greater flexibility to meet customer needs especially for applications requiring lower power consumption and in terms of fabrication processes. Velio implements in the UMC fabrication process which complements Rambus's TMC based implementation. Velio should contribute $4 million incremental revenue to Rambus during 2004.

 

During the conference call, CEO Tate announced a flattening of the organization in that David Mooring, president for the last four years, would be moved from an operations role to a strategic role.

On January 20, 2004, Virage Logic reported results for 1QF2004, the quarter ending December 31, 2003. Revenues were $10.9 million, up 10% sequentially, but down 6% compared with the same period a year earlier. Total license revenue of $9.5 million, compared with $8.6 million for the prior quarter and $11.0 million for the same quarter a year ago. Products under licensing agreement were shipped to 39 existing and 7 new customers. Standard product accounted for 86% of total license revenue. Royalties for the first quarter of fiscal 2004 were $1.4 million, exceeding the prior historical record of $1.3 million for the fourth quarter of fiscal 2003, and up from $515,000 for quarter a year earlier. During the quarter the company signed eight new direct royalty-bearing agreements for the STAR Memory System and three new NOVeA agreements.

Net loss for the quarter was $359,000, or $0.02 per share. By comparison, net loss for the prior quarter was $687,000, or $0.03 per share, and the net loss for the corresponding quarter the prior year $385,000, or $0.02 per share. Income for the quarter included an income tax provision benefit of $205,000.

"The first quarter marked continued progress toward our goal of returning to profitability," said Adam Kablanian, president and chief executive officer. "Our results for the quarter were driven by further market penetration of our semiconductor IP platform products among emerging foundries, continued growth in our royalty base and an increase in 90-nanometer design starts beyond what we saw in the fourth quarter. In addition, we are seeing signs of improved business activity in the semiconductor industry and better visibility in our business." During the conference call, the firm announced a new CFO would start on February 9, 2004.

2003 v. 2002 Calendar Year Performances

Combined revenues for the collective G8 for calendar 2003 were $554 million, up 6.6% from 2002. The largest revenue gainers were Ceva (up 94%) and Artisan (up 74%). The major revenue losers were LogicVision (down 42%) and MoSys (down 31%). See Table 3 and Figure 3. Half of the combined growth is due to the Ceva anomaly.

	2003	2002	'03 vs '02
ARM	215	226	-4.8%
Artisan	76	44	73.6%
Ceva	37	19	94.7%
LogicVision	9	16	-42.2%
MIPS	40	43	-6.0%
MoSys	19	28	-30.8%
Rambus	118	97	21.4%
Virage Logic	40	48	-16.0%
Total	554	520	6.6%

Table 3 Yearly Revenues of the Group-of-8 (G8) IP Providers ($)

 

Figure 3 Quarterly Revenue of Group-of-8 (G8) IP Providers

Stock Prices

The combined stock prices for the G8 during the year rose 73% (Table 4), significantly better than the rise of the three leading stock indexes (Table 5). Rambus stock rose 358%. The next two highest percentage leaders were Arm (up 162%) and Ceva (up 148%). Ceva, formerly ParthusCeva, was not a public company until Nov 2002. Only MoSys endured a declining stock price, while Virage Logic was essentially flat. None of the companies approached their high points that occurred during the bubble period of "irrational exuberance".

Symbol	2003	2002	Delta %	High	High vs '03	High Date	Mkt Cap $ million
ARMHY	6.9	2.63	162%	47.9	594%	9-Mar-00	2,340
ARTI	20.5	15.43	33%	29.81	45%	2-Mar-00	449
CEVA	10.41	4.2	148%	10.41	0%		189
LGVN	4.5	2.15	109%	15.15	237%	7-Jan-02	71
MIPS	5.5	3.03	82%	90.69	1549%	14-Mar-00	225
MOSY	8.57	12.08	-29%	21.35	149%	3-Jan-02	263
RMBS	30.7	6.71	358%	117	281%	26-Jun-00	313
VIRL	10.17	10.03	1%	22.81	124%	11-Jan-02	216
TOTAL	97.25	56.26	73%				4,066

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

 

	2003	2002	Delta %	High	High vs '03	High Date
DJIA	10453	8341	25.3%	11722	-10.8%	14-Jan-00
Nasdaq	2003	1335	50.0%	5048	-60.3%	10-Mar-00
S&P	1112	880	26.4%	1527	-27.2%	24-Mar-00

Table 5 Stock Market Major Indices

Forecasts from Individual IP Providers

For guidance, ARM said "The number of new products available for licensing and the momentum behind ARM's royalty revenues give us confidence that 2004 will see meaningful year on year dollar revenue growth. In the short term, dollar revenues in the first quarter are expected to be similar to those achieved in the seasonally strong fourth quarter.  If the recent further weakening of the U.S. dollar against sterling persists, however, this will inevitably have a further negative impact on Q1 revenues when these are translated into sterling, and when compared with Q4 revenues."

Artisan CFO Joy Leo stated that guidance for F2004 was unchanged from prior forecast, but would be at the upper end of EPS range. Revenue was projected to be $89 million up 30% over F2003 with expenses in the range of $69 million to $70.3 million. EPS are expected in the range of $0.55 to $0.57. For the next quarter Artisan expects license revenue of $16.1 million and royalty revenue of $4.7 million for a total of $20.8 million. This would be a sequential drop, but an increase from the $16 million for the same period a year ago. Net income should be in the range of $3.2 million to $3.7 million or $0.11 to $0.12 EPS.

In providing guidance Ceva CEO Chet Silvestri said "Exiting our standalone business has effectively removed about $1 million in revenue per quarter. Given that, we expect first quarter revenue to be in the range of $9 million to $9.5 million and operating expense of $7.7 million to $7.9 million (headcount had been reduced from 240 to 205). We are forecasting breakeven in the first quarter. For all of 2004 we are targeting top line growth year over year of 10%. Fueling this growth is the continued strength of our DSP business. Gross Margin should be 85% and we are target to be profitable for the full year. In summary, we are well positioned to achieve our top line profitability goals for 2004."

LogicVision's guidance for upcoming quarter is for revenues of approximately $2 million, a drop from $2.4 million revenue in the corresponding period a year earlier. The firm expects a net loss of between $2.5 million and $2.75 million or -$0.16 to -$0.18 EPS. This would be an improvement from the nearly $3 million loss a year earlier. LogicVision entered the year with a backlog of $18.5 million including $7.2 million in deferred revenue.

"We continue to be encouraged by the success of our key account strategy to win larger, multi-year contracts and by customer enthusiasm for our products. However, 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," said James T. Healy, president and CEO of LogicVision. "Fourth quarter bookings were very favorably impacted by one large order, and although we expect future large orders, we do not necessarily expect them to occur on a quarterly basis."

For guidance for the next quarter, MIPS suggests that total revenue should be modeled up 3% to 5% (~$11.1 million) with flat royalty and increased contract revenue compared to this quarter. For the year revenue should lie between $43 million and $45 million up 10% over 2003. Operating expenses should be in the range of $10 million to $10.4 million per quarter in the second half of F2004 for a total in the range $46 million to $47 million including restructuring charges. Net loss for the year is expected to be in the range of $0.07 and $0.10 per share.

CEO Bourgoin commented "I am pleased to report that MIPS has surpassed its financial plan for the first half of F2004. We are profitable once again and we are reporting strong results in our key business metrics. While there are still some challenges, I am optimistic about the future. Through the recession, we continued to develop important new products and continued to add key new licensees. Royalty for new licenses are becoming a significant part of our revenue stream and our new products are in a strong position to drive our license base during fiscal 2004."

MIPS CFO Eigler added "While royalties continue to be strong, it is difficult to see what inventory is in the channel and how that inventory will move to the channel over the next couple of quarters."

Having failed to meet its initial guidance for Q4 2003, MoSys management decided to limit its guidance for the next quarter to be business already booked by year end. Accordingly, the firm anticipates total revenue in the range from $4.5 million to $5.5 million. The company ended the year with orders in excess of $5 million in licensing fees that will be recognized during the year. The majority of the revenue will be form licensing activity. This represents approximately a 50% increase over the last two quarters. Mosys expects operating expenses to range from $3.6 million to $3.8 million, up approximately 10% from the fourth quarter. Mosys is restricted under confidentiality agreements from commenting on the status of specific contracts.

Rambus guidance for the next quarter is for revenue to be in the range $32 to $35 million. This compares to $32.3 million in the current quarter and to $23.5 million in the first quarter of 2003. Rambus expects expense to be between $22 and $26 million. This compares with expenses of $21.3 million in the current quarter and $23.6 million for the first quarter of 2003 (when litigation expense was $7 million).

 

The patent infringement case filed in August 2000 by Rambus against Infineon will go to re-trial in May 2004 after a favorable ruling from the U.S. District Court. Litigation expenses in the quarter had dropped by about 50%. They are expected to be in the range of $3 to $5 million in the next quarter. This suit and others are related to charges that Rambus deceived industry standards-setting group in the early 1990s so that it would receive royalties from other memory manufacturers. "Should Rambus prove that the memory makers have violated its patents, royalties annually could amount to 2% to 3% of the entire DRAM market," said Erach Desai, who follows the company for American Technology Research.

Virage Logic currently expects to be profitable on a pro forma basis with total revenues in the range of $12.0 million to $12.4 million, an anticipated increase over the first quarter of 10% to 14%. Total expected revenues for the quarter are anticipated to include royalties of approximately $1.5 million. In addition, the company expects total pro forma operating expenses to increase sequentially by approximately $600,000 to $1.0 million (404 compliance, strategic new hires, and a specific large custom deal).

CEO Adam Kablanain said "With improving industry trends and growing adoption of out semiconductor IP platform offering, we believe that F2004 will be an inflection point for Virage Logic. We are seeing signs that customers are now less cautious about the economy and more willing to invest in new design and tools. Customers are beginning to ramp up production of completed designs utilizing our memory, logic and I/O. This bodes well for our licensing and royalty revenue over the next few quarters, which have already shown sequential improvement."

 

Figure 4 Quarterly Forecast of Group-of-8 (G8)

Using the midpoints of guidance the combined forecast for the Group-of-8 for the next quarter is $154 million, essentially flat sequentially, but up 16% from the corresponding period a year ago. On a percentage basis LogicVision is the only major forecast decliner on a sequential basis. Virage Logic is the only firm predicting more than 10% growth sequentially. On a year over year basis MoSys and LogicVision are predicting significant drops in revenue, while Arm, Artisan, MIPS, Rambus and Virage Logic are all forecasting significant double digit growth.

 

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, we mentioned above 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 so far 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.

 

 

Upcoming IP Event of Interest

In the February 2, 2004 edition of the EDA Weekly Review, Peggy Aycinena alerted readers to an upcoming business forum on Electronics IP to be held at the 2004 Design, Automation and Test in Europe Conference and Exposition (DATE 2004), 16-20 February 2004 -- La Defense

Paris, FRANCE.

 

 

 

DATE 2004 is a comprehensive European Conference and Exhibition event that brings together academic researchers, industry specialists, users, and vendors in the fields of Design, Automation and Test of electronic circuits and systems.

 

Peggy reported that on February 16, 2004, Jim Tully, Chief Analyst, Gartner Dataquest will chair the event with panelists from ARM, STMicroelectronics, Verisity, Chartered Semiconductor, Mentor Graphics, and StarCoreDSP. The Alba Centre and Skye Marketing Communications are sponsors and say that the topic will be: "The IP Business Model of the future: What Will it Look Like"

 

Organizers also say: "The IP business has been hard hit over the past several years by economics and a drop in the number of chip designs and reduced profitability for semiconductor vendors. Most IP business models result in excessive commoditization and low prices of IP products, which has led vendors to exit the IP business and leaving users without support. If SoC is to achieve its potential, the industry must find a way of sustaining a viable IP market. Additionally, the semiconductor industry is moving into a new phase of growth involving innovative partnerships, raising new technology delivery and business opportunities for IP."

 

Worldwide Semiconductor Market

The Semiconductor Industry Association (SIA) presented their multiyear forecast in early November 2003, highlighting a strong growth forecast for 2004 (Table 6).

	2002	2003	2004	2005	2006
America	31.3	31.9	37.5	38.2	40.6
Europe	27.8	32.6	37.4	39.6	42.0
Japan	30.5	37.9	44.7	46.8	48.9
AsiaPacific	51.1	60.6	75.0	81.5	88.2
Total	140.7	163.0	194.6	206.1	219.7
% growth		15.9%	19.4%	5.9%	6.6%

Table 6 Worldwide Semiconductor Revenues ($ billion)

 

"We are on an accelerated growth path and this is great news", said John Daane, chairman, president and CEO of Altera Corporation, who presented the fall forecast at the SIA's 26th Annual Forecast and Award Dinner. "Growth will be broad based across all markets." Daane offered further insight into the state of the industry today. "We are facing an inflection point in our industry where chip development costs are rapidly increasing with each new process node. We believe that this is going to result in some fundamental changes in our industry. "Now, more than ever, semiconductor manufacturers are forced to closely evaluate the return on investment of each chip produced. New opportunities lie in programmable architectures such as microprocessors, microcontrollers, DSPs and programmable logic, which can be leveraged across many customers and many markets." Daane stressed, "Cost and flexibility will be the keywords going forward."

On January 5, 2004, the SIA reported worldwide sales of semiconductors rose to $16.13 billion in November 2003, a 4.5% increase from the $15.43 billion recorded in October, and a 25.7% rise from November of 2002.

"November has been another exceptionally strong month for the industry with the year-on-year growth accelerating to 25.7%, indicating that 2003's second half performance is one of the strongest on record for our industry," stated SIA President George Scalise. "Year-to-date sales through November are 17.4% ahead of 2002. We expect sales for all of 2003 to exceed the current forecast of 15.8% with broad-based strength in all end-markets, especially computation, communications, global consumer and automotive," Scalise added.

Rising PC sales contributed to the industry's growth in the month, with DRAM up 4% and microprocessors up 3.5%. The global wireless market also continued to exhibit strong growth, with Flash up 11.2% and Digital Signal Processors up 3.5% in November.

 

 

COMMENTARY * Final Words about the U.S. Economy and Geopolitics * COMMENTARY In recent commentaries, the authors reflected on the performances of the worldwide and national economies and on the resulting competitive environment faced by MCAD, PLM, EDA and Electronics IP vendors. In early December 2003, we noted that the excellent 8.2% GNP growth performance of the U.S. economy in Q3 2003 may have already been losing steam in Q4 2003: "Indeed, is the bloom off the Q3 2003 rose already? Consider just these three latest news bites: (1) On December 5, 2003 in the NY Times, Ken Perkins, a research analyst at Thomson First Call, said,'Generally, U.S. retail merchants fell short of estimates for October as well as November, and that doesn't usually bode well for sales in the holiday period.' (2) According to the Government Labor Department report on the same December 5, 2003, American employers hired far fewer workers than expected in November. The number of workers on U.S. payrolls outside the farm sector in November edged up only 57,000, down 58% from October. The November gain was far lower than analysts' forecasts for a bumper increase of 150,000. Struggling factories cut jobs by 17,000 in November for the 40th month in a row. (3) The NY Times' Louis Uchitelle said on December 6, 'Corporate chief executives have held back on hiring, concerned that the third-quarter surge would turn out to be an anomaly, overly dependent on the mortgage refinancings and tax-cut stimulus that are beginning to lose their impact.'" Lo and behold, new statistics released Friday January 9, 2004 revealed the authors' early December premonitions to be correct: The U.S. economy added almost no new jobs in December 2003 and job creation for the previous two months was revised downward. See Figure 5 below.          Figure 5 - U.S. Non-Farm Payroll Employment Late January 2004 Evidence of the U.S. Economy Losing Steam: Want more evidence? On January 30, 2004, the Bureau of Economic Analysis (BEA) announced the preliminary GDP figure for the fourth quarter of 2003 at 4%, less than half that of the previous quarter (Figure 6). Does the Q4 2003 GDP result portend another "inverted V" of previous quarterly combinations, when the GDP perked up some, only to descend once again? While few expected the 8.2 percentage growth rate of Q3 to be maintained, Wall Street and economists had been predicting 4.8% to 5% growth. Durable goods purchases increased only 0.9% in Q4, compared with an increase of 28% in Q3. Consumer spending, which accounts for two-thirds of gross domestic product, rose at a 2.6% pace in the fourth quarter, a sharp slowdown from the heady, tax-cut induced 6.9% gain of the prior three months. In the fourth quarter, businesses increased investment in equipment and software at a 10% rate. Overall business investment grew at 6.9% annual rate during the fourth quarter. Both figures were down from the third quarter. For 2003 as a whole, gross domestic product grew 3.1%, compared with 2.2% in 2002 and only 0.5% in 2001. Some analysts are concerned that businesses have yet to make longer-term investments such as in heavy equipment. "What you need to see to have a self-sustaining recovery is that investment is broadening out and companies are creating jobs," said John Lonski, chief economist with Moody's Investment Services in New York. "You haven't seen that so far."   Figure 6 Gross Domestic Product (Source: BEA)   Employment in U.S. manufacturing, where MCAD, PLM, EDA and Electronics IP live, shed another 26,000 jobs in December, the 41st consecutive month of job losses in U.S. manufacturing industries. So as previously discussed, 2003 improvements in GNP growth, corporate profits growth, corporate equity prices growth, and worker productivity growth -- all these improvements, yet job creation was a net negative in 2003.

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About the Authors:

Since 1996, Dr. Russ Henke has been president of HENKE ASSOCIATES, a San Francisco Bay Area high-tech business & management consulting firm. During his corporate career, Henke operated on "both sides" of MCAD and EDA, as a user and as a vendor. He's a veteran corporate executive from Cincinnati Milacron, SDRC, Schlumberger Applicon, Gould Electronics, ATP, and Mentor Graphics. Henke is a Fellow of the Society of Manufacturing Engineers (SME) and served on the SME International Board of Directors. He is also a member of the IEEE and a Fellow of ASME International. An affiliate of the HENKE ASSOCIATES team since 2001, LA-based Dr. John R. (Jack) Horgan co-authored this article. Jack's career has included executive positions at Applicon, Aries Technology, CADAM and MICROCADAM, as well as a stint at IBM. Since May 2003 the authors have now published a total of eleven (11) articles on MCAD, PLM, EDA and Electronics IP on IBSystems' MCADcafe and EDAcafe. Further information on HENKE ASSOCIATES, and URL's for past Commentaries, are available at http://www.henkeassociates.net.