Gartner defines semiconductor IP as pre-designed blocks of circuits for use in making complete semiconductor devices. Its definition of the semiconductor IP market only includes revenue from IP sold on the open market. Captive IP, which is IP-designed and used by one organisation alone, is excluded.
'The semiconductor IP industry has matured considerably during the past five years,' says Christian Heidarson, senior research analyst for Gartner's semiconductor group. 'However, the next five years will bring major challenges to business models, as demand for IP shifts from standard functions to more complex specifications.'
IP re-use will become even more important to chip design going forward. By boosting the productivity of design teams, IP re-use fuels one of the main trends in the chip industry: device integration. Moore's law will still apply in 2010, so IP re-use will be crucial if chip makers are to achieve the large-gate-count chips required by future electronic products.
'For design teams to keep pace with Moore's law, the IP in these complex designs has to get even more complex,' Heidarson says. 'Also, new types of IP are required to meet the demands of the most complex devices, for instance, IP blocks to support network-on-chip architectures.'
Complex IP products have the potential to generate large revenue streams. However, they require customisation, which means they will face the same problems as design services, such as being hard to scale.
'Vendors of highly differentiated IP will need to adapt their business model to pursue large deals with fewer customers. However, this will be a risky strategy for small vendors who may not survive if there are delays in market developments or a key customer fails outright,' Heidarson said.
Gartner analysts expect a significant number of complex IP solutions to be supplied by fabless semiconductor companies to complement their chip revenue. With their application expertise and their chip businesses to keep engineers busy during periods when licensing sales are slow, these companies will have a big advantage.
'The implication for the semiconductor IP industry is that it will become more segmented. There will be firms that focus on smaller IP blocks,' Heidarson says. 'We expect vendors of highly differentiated IP to themselves become significant customers of smaller IP blocks, and that many of these firms will be semiconductor vendors. We advise players in the IP industry to prepare for a market landscape where, by 2010, at least two semiconductor vendors are found among the top 10 IP vendors.'