Then, I asked for the IP vendors themselves to respond to a set of questions. Here's one letter to the editor:

Semiconductor IP is the absolute opposite of a lost cause. It is a high-growth market that is maturing. Although exact numbers vary slightly, analysts (Dataquest, Semico, IBS) agree that IP was approximately a $1.5B market in 2006, up 15 to 20 percent from 2005. That's a far higher growth rate than the overall semiconductor industry. By 2010, we believe the Semiconductor IP market will generate approximately $2.7B in revenue. So what's driving the growth? Why is it sustainable? And why should you care? I'll begin with a quick review of the companies in the semiconductor IP market.

For starters, the top ten IP vendors represent 67 percent of the market. The top 20 account for 80 percent of IP revenue. The top 30 comprise 90 percent. After the top 30, the revenue run-rate drops to less than $10M/year. At this level, the majority of these companies are not true IP companies because they don't create a standard product and sell it multiple times to multiple customers. Instead, these vendors are typically more services-based, selling IP derived from previous services engagements and often customized to a particular customer's needs.

If you focus on just Semiconductor Design IP (versus technology "patent" licensing), the top five vendors are ARM, Synopsys, MIPS, Virage Logic and Imagination Technologies. Not surprisingly, they are also among the leaders in the largest IP market segments, which include microprocessors, standards-based interfaces, embedded memory and signal processing. All of these market segments are greater than $100M and growing at approximately 20 percent per year.

Also noteworthy is the general purpose analog/mixed signal market (A/Ds, D/As, etc), which is close to $100M and growing at similar rates. Since the top five vendors are all public companies, these revenues and growth rates can easily be verified. As in most industries, scale matters and the largest vendors can amortize their expenses over a much larger customer base, thus making them more profitable.

So will the IP market continue to grow and be profitable? The answer is yes, for the following reasons:

*Consumers are driving the semiconductor market -- Consumer are all about time-to-market, cost, and often low power. It is less expensive, less risky, and faster to use proven IP than to build everything from scratch.

*Convergence of multiple technologies on a die -- Semiconductor firms have to focus on their core competencies. They can't economically afford to design every transistor on every die.

*Rise of the fabless semiconductor industry and the decline of pure IDMs -- This increases the market opportunity for standardized, silicon-proven third-party IP during a time when IDMs are reevaluating their core competencies. In the past, many differentiated on process technology and believed they had a competitive advantage because of the relationship of the design team to the fab. During the past year, Synopsys has seen a radical shift in the "make versus buy" argument. With a few die-hard exceptions, today even the largest IDM and fabless semiconductor companies are outsourcing non-core functions to third-party IP vendors.

*Expense management -- One of the top priorities in today's semiconductor market is to buy proven, high-quality IP to reduce expenses and lower internal R&D investment.

There are many other drivers as well, including time to verify a design, smaller market windows, and the high growth rate of Asia Pacific semiconductor companies.

So what about business models and quality issues? You are entirely correct to point out historical (and ongoing) problems in both areas. As mentioned earlier, when you drop below the top ten to 20 IP vendors, run-rates are too low to sustain the required investment in high quality IP. It is quite costly to thoroughly verify a design in every mode, across every timing corner, with every configuration option and then validate it in silicon, take it through certification, interoperability testing and compliance testing. This is an issue of scale -- the larger IP providers like Synopsys that invest heavily in all of these areas are among the highest quality IP vendors in the market.

On the business model side, the industry is rapidly maturing. Several years ago, it was all about cost. Today, semiconductor firms have come to realize that saving a small amount in use fees in return for a low quality, poorly supported IP block is not the fastest path to success. Of course, cost is still an issue, but now customers are looking at the total cost of ownership versus just the initial fees.

Semiconductor IP is an exciting, dynamic market featuring rapid growth, vendor consolidation, increased customer focus on larger third-party IP solutions, and great opportunities for suppliers who are willing and able to meet the market challenges. Beats playing golf any day.

Sincerely,

John Koeter

Senior Director of Marketing for IP and Services

Synopsys