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Spotlight on IP licensing models: Evolution and trends

Posted: 06 Jul 2015     Print Version  Bookmark and Share

Keywords:Imagination Technologies  IP licensing  semiconductor  processor  GPU 

Some months ago my colleague Rys Sommefeldt wrote an article offering his (deeply) technical perspective on how a chip gets made, from R&D to manufacturing. While his bildungsroman production covers a lot of the engineering details behind silicon production, it is light on the business side of things; and that is a good thing because it gives me opportunity to steal some of his spotlight!

This article will give you a breakdown of the IP licensing model, describing the major players and the relationships between them. It is not designed to be a complete guide by any means and some parts might already sound familiar, but I hope it is a comprehensive overview that can be used by anyone who is new to product manufacturing in general.

The diagram below offers an analysis of the main categories of companies involved in the semiconductor food chain. Although I'm going to attempt to paint a broad picture, I will mainly offer examples based on the ecosystem formed around Imagination (since that is what I know best).

A simplified view of the manufacturing chain

A simplified view of the manufacturing chain

Let's work our way from left to right.

IP vendors

Traditionally, these are the companies that design and sell silicon IP. ARM and Imagination Technologies are perhaps the most renowned for their sub-brands: Cortex CPU + Mali GPU and MIPS CPU + PowerVR GPU, respectively.

Given the rapid evolution of the semiconductor market, such companies continue to evolve their business models beyond point solutions to become one-stop shops that offer more than for a variety of IP cores and platforms, comprising CPUs, graphics, video, connectivity, cloud software and more.

For example, Imagination has recently announced an entire range of reference IP platforms designed to accommodate the rapidly shifting IoT market. Take the smart sensor IP platform below: not only does it include the full hardware IP required to build a chip (a MIPS Warrior MCU and an Ensigma Whisper RPU), but it also comes pre-bundled with all the additional software required to connect the device to the cloud (the FlowCloud IoT API).

Moving up the performance ladder, we find the connected audio IP platform, built around Caskeid, an innovative combination of hardware and software IP that delivers pitch-perfect wireless audio streaming.

IP platforms using MIPS, PowerVR and Ensigma

IP platforms using MIPS, PowerVR and Ensigma

Revenue model

For any new deal signed, the IP vendor will charge an up-front premium called a license fee.

Based on factors such as the complexity of the IP, cost of development, target applications and expected volumes, a license fee can vary from 100,000s to 1,000,000s of dollars.

Once products using the IP start shipping, the vendor will also receive royalties. They represent a fraction of the total chip cost and can be between a few cents to tens of cents, depending on a range of factors, including the ASP of a processor.

The royalty rate also varies over time as companies move to larger volumes.

Revenue vs. investment curves for IP

Revenue vs. investment curves for IP

The diagram above shows you how the ideal relationship between investment and revenue for IP; notice how companies must make a significant financial investment if they want to see a jump in revenue once that piece of IP reaches maturity.

The revenue curve assumes that mature IP eventually ships in extremely high volume, generating a significant return on the initial investment.

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