Commentary: Electronics IP Industry - A February 2009 Update


For the year 2008 Rambus delivered total revenue of “just” $142 million, a 21% drop from the $180 million in 2007. Royalty revenue was $127 million or 89% of total revenue, a drop of almost 18%. Contract revenue was $15.6 million, a decrease of just over 39%. Net loss for 2008 was $195 million, compared to a net loss of $27.7 million in 2007.

During the second quarter of 2008, Rambus recorded a valuation allowance of $130.5 million against its net deferred tax assets to fully reserve previously-recorded tax benefits generated from its pre-tax losses in the U.S. Pursuant to the Statement of Financial Accounting Standard 109: Accounting for Income Taxes, the Company determined this valuation allowance was required due to significant negative evidence, such as cumulative losses in recent years and projected losses from operations. Projected income from settlements or litigation was not included in the determination for the valuation allowance. The valuation allowance will be maintained until sufficient positive evidence exists to support its reversal.

Virage Logic's total revenue for the last four quarters came in at $56.6 million, a 15.3% rise from the $49 million in the preceding four quarters. License revenue at $12 million was 80% of the total, while royalty revenue at $2.6 million was 20%. Net loss for the last four quarters was $3.1 million.


Stock Market Price Changes of the G7 Electronics IP Providers - not so good !

As shown in Tables 7 and 8 and Figure 3 below, the combined Q4 2008 stock prices for the G7 decreased in absolute terms nearly 45% year-over-year and decreased almost 18% sequentially. Underperforming even the deteriorating popular stock markets, the G7's average percentage change was negative 54.5% year-over-year and down 30% relative to the prior quarter. In the same time period the major indexes fell an average of “only” 37.6% year-over-year and 22.1% compared to the previous quarter.


On a year-over-year basis, all G7 stock prices tumbled. Rambus fell the least at minus 24% while MIPS was the largest decliner at -78%. LogicVision and Virage Logic declined over 60%. MoSys fell over 50% and both ARM and CEVA suffered declines over 40%.

On a sequential basis, Q4 2008 vs. Q3 2008, Rambus (up to $15.92) was the clear winner at +24%, the only stock to increase. Rambus stock price has since fallen (see data just below). CEVA was in “second place”, limiting its drop to “only 16%”. MIPS was again the largest decliner at -68%. MOSY and Virage Logic stock price fell around 50%. ARM and LogicVision suffered drops over 20%.

As this edition of the EDA IP Industry Commentary goes to press, readers may be interested in G7 stock prices and Market Capitalizations, circa February 13, 2009:


Figure 5 below gives a visual sense of the steep decline of G7 (average -54%) stock prices over the calendar year.


Figure 6 below shows the stock indexes performance for calendar 2008 which dropped on average about 40%.



Forecast Guidance from Individual IP Providers

As reported at the very beginning of this issue of the IP Commentary, the G7 IP Providers were not very forthcoming regarding forecasts for next quarter. Those that commented heavily qualified their statements with remarks about the uncertainty in the economy and about delays in orders. From Table 9 below we see considerable pessimism for the next quarter, compared to the quarters just reported.


EDA Consortium's Market Statistics
On January 12, 2009 the EDA Consortium's Market Statistics Service (MSS) announced that the overall EDA industry revenue for the third quarter of 2008 declined 10.9% to $1,258.6 million compared to $1,412.1 million in Q3 2007, ongoing evidence of the impact of the economic slowdown that had started in December 2007.

In the third quarter, the CAE segment accounted for 37% of the total EDA revenue, IC Design & Verification for 23%, Semiconductor IP for 21%, PCB/MCM for 10.3% and Services for 8%. CAE and IC D&V declined in the vicinity of 20% while Services shot up 25%.



For the third quarter of 2008 North America accounted 44% of total EDA revenue, Europe for almost 20%, Japan for 20% and Rest-of-World for 16%. Japan was the only region to show increased revenue. North America and Europe suffered low double digit year-over-year decreases.



Dr. Walden C. Rhines, EDAC chair and Mentor Graphics CEO and chairman, said “Surprisingly high year-over-year growth in the services segment and a small increase in PCB design tools and Semiconductor IP were offset by declines in CAE and IC Physical Design & Verification, resulting in an overall decline for Q3, 2008. While the double-digit drop affected all regions except Rest of World (ROW), which showed only 1 percent decline, all regions except North America had a positive four-quarter moving average. This illustrates the sharpness of the decline in third quarter.”

Since the EDA Consortium reports lag by over three months, we won't know the total EDA revenue results for Q4 2008 and for the 2008 year till April or May of 2009.



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About the Authors of this Electronics IP Commentary:

Since 1996, Dr. Russ Henke has been president of HENKE ASSOCIATES, a San Francisco Bay Area high-tech business & management consulting firm. The number of client companies for Henke Associates now numbers more than forty. During his corporate career, Henke operated sequentially on "both sides" of MCAE/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 Life Fellow of ASME International. In April 2006, Dr. Henke received the 2006 Lifetime Achievement Award from The CAD Society, presented by CAD Society president Jeff Rowe at COFES2006 in Scottsdale, AZ. In February 2007, Henke became affiliated with Cyon Research's select group of experts on business and technology issues as a Senior Analyst. This Cyon Research connection aids and supplements Henke's ongoing, independent consulting practice (HENKE ASSOCIATES).

An affiliate of the HENKE ASSOCIATES team since 2001, LA-based Dr. John R. (Jack) Horgan co-authored this February 2009 IP Industry Commentary. Dr. Horgan's prior corporate career has included executive positions at Applicon, Aries Technology, CADAM and MICROCADAM, as well as a stint at IBM. Dr. Horgan is also an editor of EDAcafé Weekly.

Since May 2003 the authors have now published a total of seventy-three (73) independent articles on MCAD, PLM, EDA and Electronics IP on IBSystems' MCADCafé and EDACafé.

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  • Great Aricle November 14, 2009
    Reviewed by 'Gary Smith'
    Russ & Jack,
    Great work. This really puts IP in perspective. I'm writing a Research Viewpoint on competitive business models and one comment I've read on this is something like "The leader in IP was profitable, number two lost money and the rest were all small." I'd like to quote that in my report, unfortunately I can't find the quote and I don't know who said it. Can you guys help me find it ?
    Gary

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