How to value IP

In 2012, the industry discussed the qualities that reliable and reusable IP needs and the metric to measure those qualities.  We think 2013 will be the year that the value of IP becomes tangible.

We tapped Warren Savage, CEO of IPextreme, to give us his thoughts on how to value IP.

Ed: So Warren, how do we figure out IP’s value?

Warren:   In the most tangible sense, I think the question ought to be “how do we monetize IP?”

IPextreme has been at the forefront of this since we founded the company back in 2004, and it really was “extreme” back in those days to discuss licensing those “crown jewels.”    But now it is increasingly mainstream and certainly the topic for industry discussion.

So one consideration revolves around the ton of licensing done in the industry today that is hidden.   Primarily around patents and process technology.   The transactional IP licensing that we specialize in, is really something that IPextreme invented.

Ed:   Back in the late 1990s, at the dawn of the IP era, I thought that semiconductor companies would eventually deliver their chips in two forms:  silicon and IP.   Obviously, that’s not happened.  I mean, are there any chip companies who are also in the IP business?   

Warren:  There are a few.  Most notable in my opinion is Silicon Image, which drove new connectivity standards (e.g. HDMI) and then produced devices for those standards as well as licensing the IP core itself around those standards.  The bulk of their business centers around semiconductor sales, but it is a small, agile, company, able to run the licensing operation in parallel with the mainline semiconductor business.

Another notable one would be SMSC, who have done similar things with its OASIS fiber-optic multimedia transport for in-vehicle entertainment systems.

IPextreme comes into play by its IP licensing role for semiconductor companies that see the strategic need to do licensing,  but don’t want to set up all the infrastructure (marketing/sales/legal/ engineering) to deal with a  bunch of  one-off customers.   They can rely on our infrastructure which we can share across a number of partners (Freescale, TI, Infineon, NXP, etc.)

Ed:    When you say “unlicensed IP,” you mean captive IP.  That is, internally-created IP for use only in-house?      OK, I’m lost.  Why would a semiconductor company license its in-house IP for…well, for whose use?

Warren:  From what I see in general with our other IDM partners, there are two main motivations for licensing 1) To monetize these internal assets since it’s often seen as pure profit (no manufacturing, no support, just money that flows right to the bottom line); and 2) perhaps the more common one,  is there is an overarching strategic benefit to push new standards into the market?   We’ve seen this with Infineon on MSC and MLI technology for automotive segments, with TI and the Compact JTAG for the mobile segment,  and Freescale with the FlexRay and Power Architecture processors.

Further, with processors, there is a big benefit to enlarge the ecosystem.   For example with ColdFire (Freescale), customers who have invested 20 years of software development in Freescale ColdFire devices can now leverage that into their own ASIC and FPGA devices.  Customers like it because they don’t have to change processor architectures, the ecosystem partners like it because there are more seats to sell software tools, and the semiconductor companies like it because it makes their devices more “sticky” to their customers.

Ed:  Now if semiconductor companies started licensing their IP, would the IP side potentially cannibalize the silicon side of the company, if we go back to my thoughts about how chip companies would deliver chips in silicon and IP?

Warren:  I saw that as a concern voiced by the IDMs in the early days of IPextreme, but hardly hear that today at all.  As is well-written these days, SoC devices (i.e.  the ones that use a lot of IP) are extremely complex and one piece of IP rarely makes that device competitive.   It’s my experience in working with customers that if they could use an off-the-shelf ASSP device, they would do it in a heartbeat.  Making chips, and even FPGAs, are an expensive undertaking.

Ed:  OK, so licensing IP can give chip companies greater value on their chip and block designs.  But chip companies aren’t set up to sell IP on the open market.  So you’re proposing that each chip company set up an IP store, so to speak?  Sounds like huge overhead.   How to justify creating a veritable Freescale (or other) IP Store?

Warren:  That’s precisely the idea behind IPextreme.  We run the store, manage all that overhead which is not differentiated for an IDM, the IDM concentrates on building IP for its own business and we take care of the secondary IP market for the same technology.

Ed:  Ah, so not a vendor by vendor series of IP stores.   How does IPextreme serve as that clearinghouse or marketplace for IP?

Warren:  Not a clearinghouse per se.   We are not connecting buyer and seller.   We are creating IP products from the raw materials (code in this case) that come in from the IDMs, and flow out to customers as finished IP products.  It’s a real manufacturing process in every sense of the word, and it is not trivial.  It is our secret sauce on how we do that.   Every product we ship has a consistent look-and-feel, no matter whether engineers at Freescale, Infineon, TI, or NXP were behind it.

Ed:  So we’ve talked about a number of components that make up the value of semiconductor IP on the open market.  We’ve also talked about some overhead.  What’s the formula to figure out the value of an IP block?

Warren:  That is perhaps the most difficult thing that we do, but not dissimilar to any product marketing function.   It is largely driven by the supply and demand forces of the market.   If there are a lot of suppliers for the same technology, the price is driven down.  If the technology is differentiated in some way, then a premium is often seen.  For new technology with few competitors, then you need to look to the value that you are creating for your customer and arrive at a reasonable value that works for both sides.

Tags: EDA, Electronic Design Automation, Intellectual property, IP, IPextreme, Lee Public Relations, Semiconductor IP

This entry was posted on Tuesday, January 8th, 2013 at 10:57 am. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.