news
rmbs and armhy news.
again the controversial take by a reporter. particularly glaring is when he knocks armhy's $69 million in revenues, he fails to mention the %500 growth rate. wondering why he did not knock rmbs' $40 million in revenues.
techweb.com
March 22, 1999, Issue: 1053
Section: IP Trends 99
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Intellectual-property cores biz: Harder than it looks
Craig Matsumoto
The intellectual-property cores industry is still the talk of Silicon Valley, but the talk this year is turning sour. The dream a year ago was that myriad startups would spin semiconductor cores that larger companies would knit together with ease into systems on chips.
But the IP cores business is turning out to be harder than anyone thought, in terms of how to sell the cores, how much support is required and even which technologies can make a viable IP cores business.
"The dream is to go surfing on the Web and grab this core here and that core there. That's not going to happen," said Gary Smith, who tracks the cores industry for market researcher Dataquest Inc.
Investment interest has waned, too, and even the success of public cores suppliers such as Advanced Risc Machines Ltd. (ARM) isn't being taken as proof that IP can build a viable business. While most industry observers agree that an IP cores industry will eventually exist, it's becoming apparent that the model won't be as easy to build as was originally thought.
"Once we know how to productize IP, it will be of huge value. The business model is still a question mark," said Sam Lee, a partner with Information Technology Ventures.
The IP model says you remove the major costs of semiconductor development-manufacturing, primarily-and concentrate on designing circuitry. It also says you're able to sell that circuitry to multiple industry players using multiple fabs and to collect ongoing revenues, usually in the form of royalties.
Expectations for that kind of business remain lofty. DMG estimates that the merchant IP business will hit $1 billion next year. "I've seen estimates that are four times that," said John Bourgoin, chief executive of MIPS Technologies Inc.
Last year, with a few IP companies going public and valuations rising, "everybody was kind of bullish," said Bruce Graham of Bessemer Venture Partners. But despite a few early successes with companies such as MIPS and Rambus Inc., problems erupted. Some designs just didn't work inside a customer's chip. Prices for commodity cores plummeted. The wreckage has left many venture capitalists gun-shy about IP companies.
"Sand Hill Road has shut down," said Mark Bowles, president of DSP-core company Billions of Operations Per Second Inc. (BOPS). "They're just not funding IP deals because the model's not proven." Sand Hill Road is the address of many of Silicon Valley's venture capitalists.
In this environment, even Rambus and ARM aren't considered to have proved themselves yet, because they haven't weathered the public stock market for very long. "
Part of the problem is that IP hasn't become the kind of gold strike that attracts technology investors. Compared with an e-commerce company, or even a fabless semiconductor house, the revenue growth of an IP play isn't fast enough for venture capitalists' needs.
"ARM just reported $69 million revenues. That's not a bad fabless company, that's an out-of-business fabless company," Bowles said. "Even if you're wildly successful, you end up with these low numbers that aren't too exciting to a venture capitalist."
In many cases, investors believe in the IP concept but are waiting to see if the business model works long term. Despite his reticence against IP companies for now, Lee thinks the market is a shoo-in for the future. "The fundamentals are certainly there-design reuse, the ability to buy off-the-shelf components-it makes a lot of sense," Lee said. For Bill Elmore, a partner at venture firm Foundation Capital (Menlo Park, Calif.), the question is how large an IP company can become, even if it's viable. "How many Rambuses are there going to be? Two or 200?" Elmore said.
Others remain skeptical. Bruce Graham of Bessemer Venture Partners said he has stuck to semiconductors, his original area of expertise, and hasn't pursued an IP deal for the past six months. "Frankly, I don't really believe in the model," Graham said. "I'm more comfortable with IP as an adjunct to the fabless [semiconductor] model."
Possibly the most bullish of venture capitalists is Rob Chaplinsky of Mohr, Davidow Ventures. As a stock analyst with Hambrecht & Quist, Chaplinsky was an early champion of the IP concept and helped shepherd Rambus and ARM into the public market. He remains upbeat about the future of IP companies, but he also concedes that early struggles have left some investors skeptical. "People are a lot more familiar with the model, but I think people also recognizing the challenges," Chaplinsky said.
In fact, some venture capitalists are trying to steer IP-cores hopefuls toward a fabless-chip model. But some companies-BOPS, for instance-are even less enticed by the competitive conditions they'd face as fabless semiconductor companies.
Certainly the demand for silicon cores is real, as Graham has discovered as a board member of Mips-device processor Quantum Effect Design Inc. "Companies are coming to us saying, 'Is there some other way we can use this technology?' We're scratching our heads trying to figure out if we can do that."
Because not every IP play has flopped, it's apparent that the business model can work in some cases. Dataquest's Smith, who divides IP cores into three business models plus the traditional ASIC one, said it's mainly the "independent" vendors-those trying to do scattered, individual cores-who have disappointed. The remaining two business models are doing rather well, he said.
Smith believes the "star" core providers-MIPS, ARM and DSP Group Inc., in his book-have managed to build sustainable businesses. Also promising, Smith said, are the "core stores" such as Mentor Graphics Inc.'s Inventra group, which are acquiring IP cores and can therefore sell several into one chip design.
Two elements seem to be essential to the success of the star core providers: a link to a massive market and the fact that the companies sell processors, Smith said. Processor vendors are particularly well placed due to the emerging embedded market and "anything but Microsoft" philosophy that's cropping up in pockets of the embedded market.
According to Smith, embedded designs are being developed without allegiance to a particular microprocessor and standardized on a real-time operating system from a small company, which opens the door for a variety of processors to be used in a variety of designs.
The core store model, originated by Technical Data Freeway Inc., is being perfected by Mentor Graphics Corp.'s Inventra group and by Phoenix Technologies Ltd. "Phoenix and Mentor are buying up all the real good independent core guys," Smith said. He believes there's room for one or two more large core stores. "My suspicion is that Synopsys will be there someday."
So, what is it exactly that IP companies have been missing? One quick business lesson was that IP works best when it's specialized. Commodity products attract too much competition. PCI and USB cores are prime examples, as their prices have plummeted. But at the same time, that specialized IP has to be a sustainable business, which means finding a high-volume application to match.
IP companies also must take an approach that goes beyond providing components. It's becoming clear that IP operations, like the rest of the electronics industry, must follow a systems-minded approach.
"In an IP model, you'd better be service-oriented. In a fabless model, you have to be manufacturing-oriented. But in both those models, you have to be systems-oriented-you have to understand your customer's customer," Chaplinsky said.
Perhaps most discouraging to investors is that it took years to build the successful IP core firms. Rambus "had a lot of ups and downs until it got pushed over by Intel and others," Graham said. ARM took seven years to break through; "I'm not sure you could keep engineers around for seven years in Silicon Valley to build a company that way," he said.
But it's really the unforeseen technical issues, such as verification and customer support, that have doused hopes for a fast-paced, flexible IP marketplace.
"The thing that's killing off these IP guys is they're finding that support engineering is costing four times what it cost to build the cores in the first place," Smith said. "Really, what ASIC guys are looking for now is silicon-proven cores. There's just too many disasters out there. It's a shame, because a lot of the time it was the engineer's fault because they were messing with the core."
"What separates the real companies from the new, young companies is the companies that have a verification procedure built in," Chaplinsky said.
Legal concerns also must figure prominently into the business plan, because an IP company lives or dies by its patents. Although not yet a pressing problem it's possible-indeed likely-that legal questions will be the next hurdle for the IP industry.
Copyright (c) 1999 CMP Media Inc. |
