Where Have All the IP Vendors Gone? Part 1

Well, the title is a little facetious, but given all the recent acquisitions in the 3^rd Party IP market, it may certainly feel like that to some people. You can relax, there are still plenty of IP vendors left in the market and that won’t change anytime soon.

So what is going on?

• Does this foretell a slowing in the market growth so the smart people are getting out now?
• Is this the start of the long prophesied market maturation?
• Are we finally seeing the so-called market consolidation down to 4 IP vendors?

I can’t tell you how many times I have heard these questions over the last 10 years. It seems like anyone with an opinion on these issues usually speaks up when certain activities occur – like one IP vendor being acquired by another IP vendor. Or people see the acquisitions as a sign that the IP market can’t keep growing at the same rate as the last 3-4 years, which by the way was really quite good. In fact much better than the overall semiconductor market.

Let’s start by looking at the 3^rd Party IP market growth over the last several years.

3^rd Party IP Market Growth Rates: 

Source: Semico Research Corp. 

2007 had respectable growth of 16.8%, propelled by the increasing use of IP in SoC designs. 2008 was a slow year since it contained the start of the financial meltdown. The real impact was felt in 2009 as the semiconductor market recovered quickly, but the IP market still felt the chill started in 2008. Then for 2010, 2011 and 2012 the growth rates have been very good as the market rebalanced and was driven by spectacular growth in mobile applications of all kinds, the growth in connectivity required by those applications and the massive amounts of data that are being moved into and out of the Cloud. All of this takes infrastructure and ever higher performing silicon. And as we all know the SoC market, and the exceptional designs possible using 3^rd Party IP, can supply these needs very well.

So when will this growth slow down?

This is not so difficult a question to answer if you pay attention to a couple of factors:

1. The number of discrete IP blocks used in SoC designs continues to increase. This is driven by the need to meet continually rising market requirements for more functionality and ever richer feature sets. One major contributor to this trend is the need for connectivity in mobile devices.
2. Not just the number of IP blocks is increasing but the complexity of the blocks themselves is increasing also. Just look at the big.LITTLE CPU cores from ARM or a current USB 3.0 block from 3 or 4 vendors today. The complexity levels are increasing substantially again in response to market requirements.
3. The unit volumes of SoCs shipping into the market continue to rise as more and more companies turn to using a SoC methodology to design their parts.
4. This trend includes those IDMs with large off-the-shelf product portfolios that are refreshed periodically. Now when these refreshes occur, more often than not, these IDMs are choosing to use a SoC design methodology. This includes IP in its many forms.
5. The cost of IP at advanced process nodes is generally more expensive than the same IP at older nodes. This is driven by the complexity of the new processes and also by the complexity of standards being developed today. A good example is the specification for USB 3.0 at roughly 1,000 pages. The trend towards specification complexity will not stop anytime soon and in fact will probably accelerate.

Taking all these elements together yields the following view of the 3^rd Party IP market today:

Market growth as measured by revenues is strong and these revenues will increase as long as consumers are interested in buying more powerful and useful devices of all types. So not even are SoC unit shipments increasing over time, but the IP content in those SoCs is also increasing. This impacts both IP licensing revenues as well as IP royalty revenues. The long term prospect is for both to keep increasing over time.

As the base of IP revenues increases it is possible for the YoY growth rate to decrease simply because the denominator will be bigger, but the overall health of the IP industry is not in doubt unless we have another 2008 ‘event’. As we unfortunately saw, this is not predictable to any great degree. Therefore Semico continues to see healthy growth for the IP industry into the future.

See part 2 here.