The challenge for the EDA vendor?as well as for IP providers and foundries?is verification. ?Show me the silicon? is the oft-repeated expression, because if a core has never been implemented in silicon, the design is suspect. Cadence is addressing this challenge with their ?systems-in? verification strategy for ASICs with IP blocks, which starts by looking at total system functionality. Foundries and IP providers are also looking to build verification documentation; each time United Microelectronics Corporation in Hsinchu, Taiwan runs a test chip through its fab, it invites IP vendors to place their cores on the chip for verification.
EDA companies and pure-play foundries are working together more often to provide a lower-cost option to the semiconductor manufacturer, but companies like IBM are not worried about this new competition. In fact, Bruce Beers says, ?IBM has customers who have gone off and tried this model and are coming back to do business with us again. I feel less threatened by foundries now than I did two years ago.?
Generating ?pure? IP
With the new premium on IP as a distinct product, third-party IP vendors are well-positioned to reap significant profits. But as the newest players in the semiconductor industry, they have their own challenges to face.
The first is to set reasonable licensing and royalty fees. The standard fee for an IP block falls between 5 and 10 percent of the average selling price of the chip, but some customers are pushing back, saying that licensing fees for a block should reflect how much of the chip real estate is taken up by that block. ?People have to be reasonable with their terms and conditions,? says Bruce Beers. ?Rambus, for example, has been so successful because they haven?t been greedy. They have excellent technology and, in our experience, their licensing and royalty terms are reasonable.?
?A good contrasting story is IBM when it developed the microchannel architecture in the mid-'80s,? says Beers. ?The technology offered a very efficient bus structure for PCs, and it could have emerged as the industry standard through the late '80s and early '90s. But IBM licensed it at high royalties, so everybody said, ?I?m not going with IBM. I?m going to invent my own.? We?ve learned from that experience and are taking a different approach with our royalty fees today.?
While Mike Muller of ARM agrees, he also feels that different types of IP can command different licensing fees. He draws a distinction between standards that an IP vendor owns and standards they don?t own. ?There are a lot of people out there at the moment who will sell you blocks that implement an industry standard, such as a bus interface. The modern ones are PCI, USB, and 1394. They?ve got lots of customers, but lots of direct competitors as well, because no one owns the standard.?
?In the other camp are companies like ARM,? says Muller, ?where we?ve created our own standard. And while ARM is widely available and licensed to lots of people, we set the terms and conditions. So, in fact, over time, our license fees have gone up, not come down, because as the standard has become more widely accepted, its value has gone up, and ARM can charge more for it.? He cites ARM?s 24 licensees as evidence that they ?know what a fair market price is.?
Outside endorsement can help justify the value of an IP block, and Rambus is one successful example. ?For years, there were competing approaches to the microprocessor/DRAM interface issue,? says Stanley Katz, industry consultant on intellectual property. ?However, it was the endorsement of Rambus by Intel that gave it credibility as the interface of choice and propelled them from a member of the pack to the leader.? Some other important considerations for third-party IP vendors?and all companies involved in IP transactions?are IP life cycle and distribution. ?Intellectual property has a life cycle during which it goes from being of great value to both the owner and the distributor to being of little value to the distributor,? says Jordan Selburn. ?This occurs as the function becomes relatively generic, and the distributor can license that function from other sources.?
This highlights the importance of getting your product to market earlier than anyone else?before that function becomes a commodity and you?re competing on price alone. ?Manage the distribution channel before it manages you,? advises Selburn. ?The time it takes for a function to grow from being used in a limited number of designs to being a standard feature of many designs is also a progression of the continuing decrease of value capture for that function.? He cites embedded flash as an IP block in its introductory stage, with high value capture for both the IP owner and the silicon vendor, compared with PCI I/O as a standard block that offers little or no value capture for either. Mike Muller acknowledges the importance of paying close attention to distribution channels for IP blocks. ?An ARM block by itself is of no use to anyone,? says Muller. ?You have to do something with it. So, our licensees are actually adding significant value. Our criteria is, if you?re adding sufficient value and bringing extra business, we?ll license to you.? How has that criteria played itself out? ?We?ve declined license deals,? he says, ?and, at the moment, if you look at our list of licensees, you won?t find any pure-play foundries. We believe that foundries erode the price of ARM-based chips without bringing in any value.?
Don?t let IP blocks hit you on the head
First and foremost, to succeed in this new arena, you must clearly know what space you wish to compete in, and how your space fits into the larger business infrastructure. Every company must clarify where they can add value?now and in the future?and determine how they can capitalize on the IP trend without losing their identity. It requires a careful audit of existing capabilities and portfolios, and a deliberate strategy for demonstrating the value of your products. It also requires an eye for building alliances with other companies that will augment your own efforts and provide more targeted solutions for your customers.
?The IP developers who will be successful,? predicts Bruce Beers, ?are the ones that understand their own business model, the customer?s business model, and my business model. With that understanding, we can all find a way to work together.? Working together, however, is still contingent upon solving considerable technical challenges, and a new industry infrastructure?the replacement for the three-legged stool?will emerge only after these roadblocks are addressed. Industry standards for block interfaces can eliminate the technical barriers to sharing and using IP, so all that are left are the business negotiations.
?VSIA can play a role by coming up with interface standards for creating IP that are interchangeable between companies,? says Beers, ?whether it be ASIC suppliers or foundries or anybody else. They can help negotiate standards so that the models are common and bus standards work; then you can stick these things together like Legos. That?s a very achievable goal. What this does is enable a business model, where sharing IP is desirable from a business standpoint and there are no technical barriers in the way.?
Ruth Nancy Katz is a contributing editor for Microelectronics Design.
This article contains the ideas and opinions of the author and not necessarily those of IBM. IBM expressly disclaims any liability for the products or services described or otherwise endorsed by other vendors in this article. IBM does not support, endorse, or sponsor any product or services or concept, design, idea, theory, invention, technology, or other intellectual property described or otherwise discussed in this article.
Every IP block is the property of the respective company that produces it, and the product of that company?s engineering brainpower. Analysts predict that a sizable percentage of the functions on a system-on-a-chip will come from these prepackaged blocks of hardware and software. This emerging reliance on other companies for their intellectual property has disrupted the business infrastructure that was the stability of the semiconductor industry.
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