During interviews with senior managers of IP Core sellers and buyers, I was able to distinguish three provider types of IP Cores: 1) the pure-play sellers, 2) the complementary sellers, and 3) the combined IP Core and chip sellers. I describe each of these distinct types based on interviewee feedback and distinguish the respective product portfolios. Understanding the respective underlying business model is key to understanding why, for example, EDA tool providers primarily provide standards-based IP Cores, and why ARM is so successful in selling its CPUs.
Type A: Business model built around creation and monetization of IP Cores This segment subsumes all dedicated IP Core providers that do not create own chips but rather develop partial layouts and trade with these. In short, these are the companies that generate revenue primarily through development and licensing of their IP Cores (e.g., ARM, CEVA). The technology provided by these companies ranges from high-end CPUs selling for millions of dollars in upfront licensing fees and significant royalties, to small-scale video-codec modules with four to five digit licensing fees and no royalty payments.
Companies engaged in these segments “are really focused on a niche. They focus on one specific feature, or function, or even CPU like the ARM architecture” (Quote interviewee W). They enhance their offering by parameterizing their IP Cores allowing the customer to adapt the core to its specific requirements and by providing adjacent services such as integration support and bespoke software facilitating the design, as described by one manager, “we also help with the engineering work in addition to the reference manual and the standardized test to make sure that their product is compliant with our architecture” (Quote interviewee E). This company type also primarily aims to provide soft cores since the flexibility inherent in this provision format increases the size of the addressable market due to being portable to any foundry and technology node and being highly integrable with the buyer’s own designs. This flexibility, however, also mandates that IP Core providers work closely with EDA tool companies to ensure that the integration of their IP Cores into the overall SoC work smoothly. As expressed by one IP Core manager, “Our design services are complementary to our core, which is IP licensing.
In certain cases we actually partner with EDA companies. We have, for example, a (name confidential) design service kit […]. Those service kits will help a customer get to market faster or optimize for a specific performance or power or area target” (Quote interviewee E).
Regarding the type of IP Cores provided by the dedicated pure-play IP Core sellers I find that one quite successful strategy is to focus on Cores that are reliant on ecosystems or linked to software stacks in order to create customer stickiness that ensures long-term survival. This is reinforced by an IP Core manager who stated that “our main driver comes from the handheld market, which is naturally a really sticky space, because you have decades of legacy software” (Quote interviewee Z).
Type B: Business model focused on a closely related, complementary good [diagonal integration] with provision of IP Cores at a low or even zero price
Both foundries and EDA tool providers earn their primary revenues with the sale of their core-product (EDA tool or ordered wafers) and use the provision of IP Cores to enhance customer value or provide an enhanced solution to the customer (e.g., TSMC, Synopsys) making them both active developers of IP Cores. Foundries focus their development offers on basic building blocks required to translate the Soft Cores into technology-specific Hard Cores. A foundry offers the basic versions of these IP Cores for free since this acts as a facilitator in getting customers to purchase wafer capacity, the clear priority for foundries. A manager at a foundry described this as “IP Cores help a lot to enable new SoC design wins and tape-outs at foundry’s processes. […] However, the commercial value of IP core licensing income is not foundry’s business focus” (Quote interviewee M). They may choose to sell more advanced versions of these IP Cores to their customers if required, but will mostly leave the field of developing advanced IP Cores to certified, partner companies of Type A that are able to pass the development cost on to the customers through dedicated licensing contracts. I have received anecdotal evidence that some foundries will scan their customers’ layouts and collect royalties for any proprietary designs of third-party IP Core companies contained therein addressing the issue of monitoring the number of chips produced. According to interviewee M, “If it's a process based IP, GDS delivered IP [i.e., delivered as a hard core], like mixed-signal IP or a standard cell library, they will be scanned-out in the foundry when the customer tapes out. They will have some information.”
EDA tool companies operate somewhere between the Type A and the foundry models detailed above. They sell their IP Cores and the IP Core segment is treated as a
profit center (compared with the cost center approach of foundries), yet the close tie-in with the EDA tool development creates synergies for both business units. There are primarily three sources for synergies. On the one hand, the IP Core business unit benefits by being able to use the latest versions of the EDA tools, sometimes even before these are sold in the open market and at significantly lower to no cost as outlined by one EDA manager who stated that they, “don't charge for EDA tools from cross chargers [i.e.
internal users]. So there is a cost advantage of having the IP division within the larger EDA company” (Quote Interviewee K) and can use the contact to foundries to ensure the ideal modelling of IP Cores to the specific processing technology and the various contact points to customers of the EDA tools to pitch their IP Cores. That same manager stated,
“In general, we want to provide cores that go onto a very wide range of chips, because it takes advantage of some our core strengths as a company. Our channel, our reach, and our distribution” (Quote interviewee K). The EDA tool business unit benefits from having a sizable number of IP Core developers who can beta test the latest versions of the EDA tool and provide valuable feedback on required functionality and bugs during the development process as the EDA manager verified by stating, “We are a very large user of the tools and can provide some very strong and focused feedback that improves the overall tools significantly” (Quote interviewee K). Ultimately, both business units benefit from being able to provide an integrated solution to customers’ needs by providing the two complementary facets of software to facilitate the integration of the SoC and building blocks that work smoothly with the EDA software to fill the gaps in the SoC design. The same manager sums up this aspect with, “If you think about EDA tools: What is their primary purpose? Their primary purpose is to take ideas at various levels of abstraction and implement them quickly […]. If you think about it from that perspective, IP is almost, in some ways, like the ultimate tool, because instead of having to translate it through abstraction layers, it's already pre-existing” (Quote interviewee K).
I find that EDA tool providers offer a high share of standards-based interface IP Cores that are typically provided as Hard Cores and will focus on the mass market as summarized by one independent expert stating that “if you look at Synopsys, which is market leader in this IP segment with more than 50% market share - Synopsys is providing the solution for the mainstream market. If you look at the interface IP market it is based on standards, protocol standards” (Quote interviewee V). This focus on non-differentiating IP also enables EDA companies to avoid being seen as competition by the Type A companies that are customers of their EDA tools, thus avoiding a possible conflict
of interest as expressed by the EDA executive who stated “Think about your phone. It has a USB port on it. Do you ever buy your USB phone, because it has a USB port on it? Of course you don’t! […] It's a classic example of something that is necessary and required, but doesn’t differentiate the product. So our customers are saying: ‘[…] We can design it ourselves using Synopsys tools or we can just buy the whole thing from Synopsys and implement it in our chips. Our customers don’t view, in any meaningful way, us competing with them’ ” (Quote interviewee K). During my interviews, I heard that this was due to the fact that EDA companies are well positioned to capture this market since they are able to quickly implement new standards due to their intricate knowledge of the EDA tools, as described by the EDA executive “as a leading EDA tool supplier we use our best in class tools to design our IP” (Quote interviewee K), and are able to fund the expensive large teams with the required high level of expertise over extended periods of time required to develop these Cores. Finally, EDA tool companies are able to bundle their offering of EDA tools and IP Core into attractive packages as described by one interviewee who stated, “Synopsys defines the price in a bundle with tools, the licenses, the service level agreements. […] Of course there is a list price for an IP Core, but that is somehow factored into the bundle price.” (Quote interviewee S, translated), all of which combined enabled “Synopsys, for example, in the area of USB achieve a market share of 80-90%”
(Quote interviewee J, translated).
Type C: Business model that involves both sale of final products, as well as IP This provider type incorporates both Fabless providers and IDMs (e.g., Intel, Infineon). In the semiconductor industry, the special circumstances of high price differences between physical products and IP, the competitive non-cooperative mindset, and globally integrated markets lead to a strong concern about cannibalization as summarized by an independent expert “there is more ‘protectionism around designs.’ A belief that I'm going to enable a competitor, therefore I'm not going to make it available.
Particularly given the relative value I get for it compared to what I would get if I had made the winning tool and try to get the market share” (Quote interviewee AA). IDMs face the additional risk of owning a manufacturing site that rapidly depreciates, so that any lost chip sales due to out-licensing of the technology will additionally reduce utilization of the manufacturing plant with a corresponding bottom-line impact due to the high fixed-cost share of these fabs. Therefore, out licensing by these providers is rare and usually triggered by specific end-customer requests to do so (usually in order to enable a dual-source strategy based on one technology).
A final market participant type of a somewhat different nature is market places focused on matching supply and demand of IP Cores.
The market place providers do not add to the amount of IP but have a very relevant role of matching supply and demand, especially for smaller IP Core providers that are not present in chip designer’s minds (e.g., IPExtreme, Design&Reuse).