IP consolidation is a game where the spoils will go to the bold. The companies that conceive, create, and defend a platform strategy will consolidate the IP critical to that strategy... or die.
Why do semiconductor companies and system houses acquire IP suppliers or smaller semiconductor companies? For the answer, let's recall a certain recent football championship where the winning team had both a powerful offensive and defensive game -- for the Seattle Seahawks, it was vitally important to have a winning strategy "on both sides of the ball."
This dual strategy translates nicely to the ferocious and unforgiving competition among the giants of semiconductor IP consumption -- such as Apple, Google, Microsoft, Samsung, and others. At stake are huge markets for autos, cellphones, digital TVs, game platforms, and the emerging Internet of Things. These companies are striving to gain competitive advantage in technology, manufacturing, market strategy, and patents.
To prevail, these semiconductor IP consumers must -- like the Seahawks -- develop a dual strategy. They must continue to aggressively defend their current markets and platforms. They also have to diligently pursue a stronger offense by enhancing and differentiating their product offerings through IP acquisition.
This leads to semiconductor IP market consolidation, when IP consumers acquire IP suppliers to gain a strategic advantage over their competitors.
Most IP consumers buy third-party semiconductor IP for one or more of the following fundamental reasons:
- To save development cost: It's usually cheaper to buy IP than make the technology from scratch
- To contribute to product strategy: IP is a necessity, often a central ingredient to deliver a competitive advantage to a final chip or system product
- To reduce risk, complexity, and time-to-market: IP comes "ready to use and re-use," enabling faster integration and design verification processes for current and next-gen design projects
When you observe the behavior of semiconductor IP consumers, you notice that highly successful companies wield their control and influence around software programmable hardware devices that deliver highly profitable digital media content. If digital content is "King," then the hardware is the King’s "Throne." Hardware provides the foundation from which to defend current market positions and launch pre-emptive strikes on future, emerging markets where the benefits of the "packaged content and hardware solution" become extremely compelling. The package is a platform that forms the basis for building strong business and partner ecosystems that help sustain revenue and income growth. Platforms bring structure, speed, and predictability to the chaos of the electronics industry -- all reducing risk of the product in the marketplace.
Semiconductor IP market consolidation revolves around IP consumers acquiring IP suppliers when the particular technology becomes absolutely critical to the success of their platforms. Continued semiconductor sales growth for IP consumers depends upon product line extension and expanded technology portfolios that support broader platform adoption and deeper market penetration. For most semiconductor IP suppliers in the "mission critical" category, Sonics included, owning technology and the patents behind that technology creates a prospective "jewel in the crown" for the "Kings" of digital content.
I expect semiconductor IP consumers to continue aggressive defense of their markets and platforms. I also expect them to aggressively pursue a stronger offense by enhancing their product offerings through IP acquisition. IP consolidation is a game where the spoils will go to the bold. The companies that conceive, create, and defend a platform strategy will consolidate the IP critical to that strategy... or die. Fair warning to those companies that standby, fail to act, and lose relevance in the face of IP consolidation.
— Grant Pierce is the CEO of Sonics Inc.