'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.'