Consortium to Create Exchange
For Buying, Selling Chip Designs
By DEAN TAKAHASHI
Staff Reporter of THE WALL STREET JOURNAL
A consortium organized by a Scottish economic development group plans to announce Monday that it will create an exchange for buying and selling semiconductor-chip designs.
Nine companies covering the spectrum of electronics are forming the Virtual Components Exchange, which will match companies that want to license designs with companies that need to buy components.
The exchange is the first step toward reaching the futuristic hope that chips might one day be assembled like Lego blocks, with parts plucked one by one from an online catalogue, then plugged into highly integrated chips building-block style.
'Most Efficient Way to Trade'
"The trends tell us that in five years, you could see billions of dollars" trading in license transactions on such an exchange, says one of the consortium's sponsors, Robert Leach, senior vice president of market development at Cadence Design Systems Inc. in San Jose, Calif. "If there are people who have a need, and others who have a supply, the most efficient way to trade is to set up some kind of market."
If it succeeds in building a kind of shopping mall for chip intellectual property, the exchange could help usher in the era of the "system on a chip," a Holy Grail of chip makers who want to lower the costs and improve the functionality of today's consumer and industrial electronics goods by reducing all of the functions of an electronic system onto a single chip.
The companies include systems makers Motorola Inc. and Toshiba Corp.; Finnish cellular-phone maker Nokia Oy; chip-design-tool makers Cadence and Mentor Graphics Inc.; chip licensers Advanced Risc Machines Ltd., Phoenix Technologies Inc. and ISS Ltd.; and chip maker Taiwan Semiconductor Manufacturing Co.
Under a plan being drawn by the economic development agency Scottish Enterprises, companies wishing to trade intellectual property would abide by the same business and technical standards. Unlike stock markets, though, the exchange won't have quoted prices; it will be a matchmaking service that would allow interested parties to work out their own contracts and prices confidentially, says Andrew Travers, interim director of the exchange. The consortium hopes to iron out a plan for legal and business processes so that trading can begin in the next 12 months, he says.
'That's Unrealistic'
If anything, the exchange is establishing an alliance in what could become a world war in the chip industry, where large custom-chip makers such as LSI Logic Inc. in Milpitas, Calif., would try to fend off smaller chip designers whose chip "cores" could be so interchangeable that they could be built in any factory. "The idea that intellectual property will be available at retail for modest sums, and that you can spin it into a chip that works properly -- that's unrealistic," says Wilf Corrigan, CEO of LSI. "We know how much effort it takes."
The opposing side is made up of manufacturers such as Taiwan Semiconductor, which serves as a foundry, a kind of gun-for-hire that only makes chips designed by other companies. To fill its factory, TSMC wants as many design companies as possible to succeed in licensing technology.
Skeptics view the proposed exchange as science fiction because of significant technical hurdles. For instance, just as it is sometimes easier to blow up an old building rather than rehabilitate it, lots of engineering resources are needed to make a chip design reusable. Most engineers design their chips so they can be built in a specific factory in order to take advantage of its particular manufacturing capabilities. When someone tries to mix one design with another and make the chip in a different factory, the likelihood of incompatibilities multiplies, says Robert Payne, a senior vice president at custom-chip maker VLSI Technology Inc. of San Jose.
For two years, a consortium of 180 companies, dubbed the Virtual Socket Interface Alliance, has been trying to develop standards that make it easy to reuse chip designs. Progress has been slow, but the group says that chips compliant with its standards could come out as early as a year from now.
Only a few companies have been successful at licensing designs to other chip makers: Advanced Risc, based in Cambridge, England, and Rambus Inc. and MIPS Technologies Inc., both in Mountain View, Calif. Phoenix licenses its chip interconnection technologies to as many as 50 companies a quarter.
Legal Issues
Cadence's Mr. Leach says that the technical hurdles could be small, compared with legal issues. He believes the exchange can help solve problems such as one faced by Sony Corp., which took nine months to secure rights to three small building blocks that it wanted to use in a new chip.
Mr. Travers estimates it takes $300,000 in legal overhead just to license a technology, more money than most start-ups possess. If the exchange follows the entertainment industry and makes licensing easier, then start-ups would stand a better chance at surviving on royalty income, and big companies would get designs done on time, he says.
The driving force behind the exchange is the fact that few companies can design everything they need on their own. With the newest 0.18 micron manufacturing processes, chip makers can put 100 million transistors on a chip, or the equivalent of several dozen Pentium microprocessors. But the tools that engineers use to automatically lay out designs on a chip aren't keeping pace. Because of the complexity, even the biggest chip makers are on buying sprees, described by one CEO, National Semiconductor Corp.'s Brian Halla, as the "intellectual property scavenger hunt."
The companies are all striving to produce what they call a "system on a chip," or one that incorporates building blocks from numerous other chips and integrates them into a device that can run an entire system, such as a cellular phone, resulting in much cheaper and more functional devices. For instance, in 1992, a cellular phone used seven control chips; now it uses three, runs longer and costs less.
As more companies adopt a system-on-a-chip strategy, Dataquest Inc. analyst Brian Lewis estimates that semiconductors used in such chips will grow from a $9 billion market in 1998 to a $24 billion market in 2002. "But first, people are going to have to put politics aside and get standards for trading in place," he says.
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