The IP licensing business model. A love story.
From concept to product
EDA and pure-play foundries
Some prefer to keep EDA companies and pure-play foundries in separate categories but I like to lump them together based on the synergies that exist between them. The major EDA companies include Cadence, Mentor Graphics and Synopsys while pure-play foundries are represented by the likes of TSMC, UMC, SMIC and Globalfoundries.
Imagination maintains a very close working relationship with all of the above. EDA companies help us produce DOKs and also collaborate on designing test chips or FPGA prototyping rigs. These products help us better verify our designs before they enter production while EDA guys can also help their customers (semiconductor vendors) hit targets faster.
Synopsys routing tools at work
Here’s a little known fact: Synopsys and Cadence are also large suppliers of IP (some of the largest in the world by revenue and sheer breadth of offerings). Synopsys ships a wide range of CPUs and peripheral IP. USB, PCIe, DDR, SATA, HDMI, MIPI, Ethernet – you name it, they most certainly have it. Cadence on the other hand has recently acquired Tensilica, a strong contender in the DSP IP market.
Foundries like to keep IP vendors close because they can optimize process nodes and libraries on a broad selection of processors and architectures. This ensures they can service a larger customer base and adapt to ever-changing market conditions.
Turning sand into SoCs
Two relevant examples are the recent process nodes from TSMC designed for ultra-low power IoT devices – 16nm FinFET C (16FFC) and 28nm HPC+; they were introduced
specifically to serve a growing desire to reduce power consumption for constrained devices such as wearables and IoT sensors.
OEMs and ODMs
Although many will look away thinking there isn’t a lot to see here, I really find this segment fascinating. I won’t focus too much on the history of device manufacturing or the leading companies today.
Instead, I will provide a quick snapshot of the rising stars in the East. If you think of the number of companies that really started from nothing five years ago (Xiaomi, OnePlus, OPPO, Meizu or Micromax, etc.), it is truly remarkable how quickly they have grown. Many enjoy cult-like status in Asia and seem to be getting exceptionally good at delivering true flagship products at very attractive prices.
The enormous success of these local heroes has been based on incisive marketing strategies and speaking directly to consumers: viral marketing campaigns that produce real results, affordable and usable devices that look good, access to local services, and customer support channels specifically tuned for regional requirements.
This back to the roots approach to product design and marketing gave Xiaomi, Meizu and others a big boost in popularity; soon, market share growth followed suit. In a big way.
Another interesting development is the increasing interest displayed by online service providers (particularly e-commerce companies) in becoming OEMs. For them, the hardware platform becomes less of a revenue stream and more of a strategic tool for delivering value-added services. The classic example is Amazon and the Kindle Fire program but Microsoft is another company worth following; a lot has also been written about the Alibaba Group recently acquiring a large chunk of Meizu.
Asus Zenfone 2 packs high-end features at a very affordable price
Finally, ODMs are striking some surprising deals too, moving beyond their traditional contract manufacturing role. When Nokia launched the Intel-powered N1 tablet (its first mobile device after selling off the Lumia brand to Microsoft), Foxconn emerged as a strategic partner, going into uncharted territory by handling distribution, sales and customer care, and reportedly even taking responsibility for liabilities and warranty costs.
The vertically integrated
Taking the vertically integrated route can offer substantial advantages if done right. Companies that are vertically integrated have a very tight grip on many aspects of manufacturing; there is a lot to be gained from the synergies that result.
Samsung offers optimized foundry solutions
I can serve up many examples of vertical integration in the semiconductor market; for the sake of time, I will focus on the three that I think are relevant today:
- The semiconductor designer/foundry hybrid: the most well-known example here is perhaps Intel, known for their Atom, Core and Xeon microprocessors; another example is STMicroelectronics, a French-Italian IC design and manufacturing house strongly in favour of FD-SOI technologies.
- The semiconductor designer/OEM hybrid: Apple holds the crown here in terms of popularity although there are many companies that have developed an SoC design arm. Examples include Amazon (Lab126), Huawei (HiSilicon), Panasonic (Panasonic SLSI) and LG (LG SIC).
- The all-in-one hybrid: there is only one company that has brought together almost all aspects of manufacturing under one roof and that company is Samsung. Although the Korean juggernaut still relies on IP vendors for the building blocks of its processors, it has produced amazing large array of chips manufactured on leading edge process nodes; a recent teardown of a Galaxy S6 smartphone revealed a vast majority of components that came out from Samsung’s own foundry and LSI group.
It will be interesting to see whether Samsung will remain the only semiconductor-foundry-OEM juggernaut or if anyone else will make a move.
Obviously, I have kept the best for last (note: praise from hardware engineers is like catnip for software developers). This category is an important piece of the puzzle because it makes or breaks an ecosystem. You can have the world’s best hardware – if there is no optimized software to run on it, it will die a certain death.
Growing and maintaining an ecosystem requires considerable effort from hardware vendors. For example, many sources have confirmed that Intel employs more software than hardware engineers.
At Imagination, there are multiple teams writing software for MIPS CPUs; emulators, compilers, OS bring-up, customer support and many other tasks requiring a sizeable team of software experts.
There you have it! You’ve read about how semiconductors go from concept to product and now you’ve learned how different pieces of the business puzzle sit together.
No matter how the market evolves and irrespective of who survives, one thing to remember is the remarkable contribution made by all the companies mentioned here – and others too – to today’s rapid technological progress.