Commentary: Electronics IP Industry - A November 2006 Update


Electronics IP Industry - A November 2006 Update

by Dr. Russ Henke and Dr. Jack Horgan
Henke Associates

In their September 2003, December 2003, February 2004, May 2004, August 2004, November 2004, February 2005, May 2005, August 2005, November 2005, February 2006, May 2006, and August 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 November 2006 Commentary, we look at the financial performances of the “G7” Electronics IP vendors during the third quarter of 2006.

Group-of-7 ("G7"):

ARM Holdings plc
Ceva, Inc.
LogicVision, Inc.
MIPS Technologies, Inc.
Rambus Inc.
Virage Logic Corporation
Cambridge, UK
San Jose, CA
San Jose, CA
Mountain View, CA
Sunnyvale, CA
Los Altos, CA
Fremont, 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

On August 2, 2006 the Semiconductor Industry Association (SIA) reported that worldwide sales of semiconductors totaled $20.5 billion in August, up over 10.5% from August 2005. SIA's Global Sales Report (GSR), a three-month moving average of sales activity, is shown in the following Table 1.

Both MIPS and Rambus failed to provide earning results for the most recent quarter. On August 15, 2006, Rambus announced the resignation from its Board of Directors of Geoff Tate, former Chief Executive Officer of Rambus from 1990 through 2005.

On October 31, 2006 ARM announced it had acquired SOISIC, a Physical IP company based on Silicon on Insulator (SOI) technology. The privately-owned company has offices in Grenoble, France and Santa Clara, California and has net assets of approximately Euros 250,000. The Grenoble office will become a new design center.

How did the Electronics IP G7 perform in the Third Quarter of 2006?

On the revenue front, Table 2 below reveals that the G7's combined Q3 2006 performance was $216 million, a healthy increase of nearly 22% from the $176 million in Q3 2005 but flat relative to the just previous quarter. On a year-over-year basis, MIPS was the clear leader with 65% growth, with Rambus in second place with 27.5% growth. LogicVision, ARM and Virage Logic had around 20% growth. On a sequential basis MoSys was the revenue growth leader at 73%. MIPS and Rambus grew over 5%.

Figure 1 below provides a bar graph of each vendor's revenue for Q3 2005, Q2 2006, and Q3 2006 in sequence. ARM continues to dominate the G7 with 56% share. Rambus is a strong second at 21%. Virage Logic and MIPS have high single digit shares.

As mentioned in the news highlights, Rambus and MIPS did not report earnings for the quarter. The remaining five firms (as shown in Table 2 below) had combined earnings of $14 million. This compares to $24.8 million for those five in both the prior year and prior quarter. ARM dominates these figures. ARM earnings were relatively flat year-over-year but dropped 32% sequentially.

Q3 2006 Results of Individual Electronics IP Providers:
On October 31, 2006 ARM Holdings plc announced the results for the third quarter, the period ended September 30, 2006. Total revenue for the quarter was £64.8 million, a 15% increase from the £56.7 million in the third quarter of 2005, and nearly a 1.4% decrease from the £65.7 million in the previous quarter. In terms of US dollars, total revenue was $121 million, up 20% from the third quarter of 2005.

Total license revenues in the second quarter were £27.9 million, representing 43% of group revenues, compared to £25.9 million in Q3 2005. Total royalty revenues in Q3 2006 were £26.2 million, representing 41% of total group revenues, compared to £21.4 million in Q2 2005, an increase of 23%.

Sales of development systems in Q3 2006 were £6.5 million, representing 10% of total group revenue, compared to £5.8 million in Q3 2005, an increase of 12%. Service revenues in Q3 2006 were £4.2 million, representing 7% of total group revenues, compared to £3.6 million in Q3 2005.

The Processor Division (PD), formerly the original ARM, had revenues of $75.3 million, an increase of 19.5% compared to the same period last year, but an decrease of 1.1% compared to the prior quarter. ARM partners shipped 621 million units in Q2 2006, up 53% on the comparable period last year and up 12% sequentially. The Physical IP division (PIPD), the Artisan division established after the acquisition at the end of 2004, had revenues of $21.2 million, an increase of 21% year-over-year and an increase of 8% sequentially. In the quarter, ARM signed a further 20 licenses for physical IP bringing the total number of licenses to 263. Of the 20 licenses, four were platform licenses to foundries. The PD division accounted for 75% of the combined revenues and the PIPD division for 25%.

Warren East, ARM Chief Executive Officer, said: “Having reported a strong second quarter in July, we are pleased to have achieved record dollar revenues, up 20% year on year, in the third quarter. We continue to execute well on licensing across the business with three more Cortex family licenses and three more 65nm physical IP licenses being signed in the quarter. Additionally early in Q4, the Physical IP division completed the licensing of leading-edge 45nm technology to IBM, Samsung and Chartered, representing a further significant milestone towards our longer term goal of licensing our Physical IP products on the most advanced processes to the wider semiconductor industry. With licensing and royalties performing well, we are confident of achieving a solid Q4 in line with current market expectations.”

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  • Good to know about these facts November 26, 2008
    Reviewed by 'Azam Ghani'
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