The market for IP Cores is an interesting object of study because it is well-established, growing, and has achieved a degree of stability comparable to a product market. While the computation of growth in terms of sales is straightforward, I measure stability by identifying 1) the share of revenue that stems from companies new to the ranking, 2) the share of firms that are in the top 50 ranking in 2014 that were already present for each of the previous years (i.e., a measure of longevity of firms in the ranking), and 3) the number of companies that dropped out of the top 50 ranking by drop-out reason of the market for IP Cores. I compare each of these stability indicators to the respective values for the Fabless industry.
The size and growth of the market for IP Cores is reported as part of the annual Semiconductor Intellectual Property Report by Gartner (2007-2015) and shown in Figure 613. It shows that the market stagnated around 1.3 billion USD of revenue between 2007 and 2009 but has since regained momentum and has grown steadily with a compound annual growth rate (CAGR) of about 15% between 2009 and 2014. Additionally the graph reveals that while the level of revenue of the Fabless market is significantly higher, the change in revenue over the years closely mirrors the change in revenue of the IP Core
13 Tuomi (2009, p. 43) has a different version of this based on the same reports, which show continuous growth of the IP Core industry from 1999 to 2008. This difference is due to Tuomi reporting the sum of the categories ‘technology licensing’ and ‘Design IP’ as available in the Gartner reports up to the year 2008. Since the ‘technology licensing’ category is no longer reported as of 2009 and I am primarily interested in the trading of IP Cores, I only show the revenues associated reported as ‘Design IP.’
market, thus showing a comparable reaction to the financial crisis of the years 2008 and 2009.
Figure 6: Annual total ‘Design IP’ market revenue of the IP Core – left axis - and total revenue of the Fabless industry – right axis - in billion USD; Data: Gartner, IC Insight
To understand whether the growth stems from a volatile environment with a large number of companies entering and exiting the market or from a stable set of companies that are continuously expanding their revenue, I analyze the percentage of revenue that stems from companies that are new to the top 50 in a given year (light blue) compared with revenues generated by companies that were already present in that ranking the year before (dark blue) in Figure 7. The low share of revenues of companies that were not in the ranking the year before (consistently between 2% and 5% across all 7 years of analysis) reveals that growth of the incumbent firms, and not that of new entrants to the ranking, is what primarily drives the growth shown in Figure 6.
0.0 0.5 1.0 1.5 2.0 2.5 3.0
2007 2008 2009 2010 2011 2012 2013 2014
0 10 20 30 40 50 60 70 80 90 100
USD bn -IP Core USD bn -Fabless
Fabless IP Core
Figure 7: Share of revenues from companies new to the top 50 rankings vs. companies already in the top 50 ranking the year before for the IP Core market; Data: Gartner
Comparing this share of the revenue of companies that were not in the top 50 ranking the year before with the respective values for the Fabless market, reveals that both markets feature a similar share of revenue of new entrants, with the exception of the year 2009 (see Figure 8). This is due to the entry of AMD into the Fabless rankings after carving out the manufacturing business. The data is only compared between 2008 and 2014 because the corresponding top 50 Fabless ranking is only available as of 2007 (the previous year only contains the top 40, which would distort our analysis). Therefore, the first statement made with regard to new vs. old firms is as of the 2008 ranking.
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2007 2008 2009 2010 2011 2012 2013 2014
Share of revenue of IP Core companies new to the top 50 ranking Share of revenue of IP Core companies already in the top 50 ranking
Figure 8: Share of revenues from companies new to the top 50 ranking - IP Core vs. Fabless; Data:
Gartner, IC Insight
To develop a perspective on the total number of new entrants to the top 50 ranking over time, I compare the companies of the 2014 top 50 ranking with the companies constituting the top 50 rankings of the previous years and calculate the share of 2014 companies that were already present in the top 50 ranking of each vintage. To allow for a qualitative evaluation of these fluctuations, I additionally compare them to the stability of the top 50 ranking of Fabless companies using the McClean report on Fabless companies provided by IC Insights (2007-2015) using the same approach and find that the longevity of companies in the top 50 rankings is comparable for our observation period as visualized in Figure 9. I therefore conclude that the market for IP Cores is stable in both the short term and medium term on a comparable level with the Fabless market.
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
2008 2009 2010 2011 2012 2013 2014
IP Core Fabless
Figure 9: Comparison of stability between IP Core and Fabless top 50 rankings between 2007 and 2014; Data: Gartner, IC Insight
Finally, an analysis of the reasons for the firms dropping out of the top 50 rankings between 2006 and 2014 14 (Baumeister, 2016; Wolz, 2016) as summarized in Table 7 reveals two things. On the one hand, the number of companies permanently exiting the top 50 ranking for Fabless firms is comparable to the respective number of companies for the market for IP Cores (and correspondingly of new companies entering the ranking).
However, the share of companies exiting the ranking because of having been acquired is substantially higher for IP Core companies compared with Fabless companies. Not a single IP Core company dropped out due to bankruptcy and only two companies dropped out of the Fabless ranking for this reason. This indicates that companies either tend to shrink in revenue for a long time, thereby disappearing off the rankings before they go bankrupt, or another company acquires them.
14 I consider a firm drop-out only when it does not subsequently reappear in the rankings. A company that dropped out in 2009, reappeared in 2010, and dropped out again in 2011 qualifies as a drop out only once, in the year 2011.
0%
20%
40%
60%
80%
100%
2007 2008 2009 2010 2011 2012 2013 2014
Share of 2014 top 50 IP Core companies already present Share of 2014 top 50 Fabless companies already present
Table 7: Summary of reasons for drop-out of Top 50 ranking 2006 – 2014 - IP Core and Fabless
The similarity of market stability as exhibited by the number of companies disappearing from the Fabless top 50 ranking and the corresponding figure for IP Core is further reinforced by the resemblance of the relative revenue share contributed by new firms (firms that have not been in the ranking the year before, thus, the data contained in Figure 8).
These findings suggest that the product and the technology market under observation are of similar stability. This is surprising considering the substantially lower barriers to entry into the market for IP Cores in terms of skill and capital required. Three interviewees contrasted the prospects of entering the market for IP Cores with entering the Fabless market: “Entering the [IP Core] market is easy. Any unemployed engineer and a couple of friends with knowledge in a particular application space (e.g., video processing or PCI express communications) can start an IP company. Little more capital is needed than what is required to pay salaries” (Quote interviewee L); “being a Fabless provider or a Fabless startup is very difficult these days of course. Mask costs are very high, also packaging” (Quote interviewee Y), and “The last Fabless semicon company in which I was involved was 2007. We underestimated how much money we would need. To get a somewhat reasonable foothold that would have been a 100 million USD trip. ROI [return on investment] combined with the likelihood of success was too low for any investors to take on that risk. […] Therefore there are practically no startups anymore in Fabless” (Quote interviewee S, translated).