By Ed Sperling

Santa Clara, Calif. — Feb. 3, 2009 — Build or buy has always been a question for system-level developers. There are time-to-market pressures to create and test a system, and there frequently are integration issues even with the best-qualified third-party intellectual property.

But what’s the actual tipping point where it makes sense to buy IP? Mark Gogolewski, chief technology officer at Denali, said it’s based on a factor of 10. If it costs 10 times more to build than to buy, then it makes sense to go outside.

Gogolewski noted that it generally costs IP vendors 5 times the initial investment to productize, sell, market and finance IP development. Profit-taking accounts for an additional factor of 3. Those numbers get multiplied, so it costs 15 times the investment to create a final product that can be licensed commercially.

The numbers for an IP vendor, however, can still be significantly lower than an internal development team within a semiconductor company. There is less overhead, more specialization, and sometimes there is an opportunity for re-use of code that already has been developed. On top of that, many companies simply don’t have the skilled engineers on staff to develop specialized IP, which has become dramatically more complex over the past decade.

Quality from third-party IP also has improved from the early part of the decade, when off-the-shelf IP blocks often caused more integration headaches than they were worth. They are now viewed as essential building blocks on complex chips, which is a testament that repeatedly throwing very smart people at a problem and learning from mistakes eventually pays off.

There also is enough critical mass in the market to be able to test IP designs in a variety of applications. “Our internal rule is that if there are not 40 designs a year, it’s not a viable enterprise,” Gogolewski said. “You even want more designs than that because not everyone will outsource this work at the same time.”

In addition, the companies selling the IP are likely to be around in five years. The majority of IP vendors at the beginning of the decade were small startups. Those startups have since been acquired or grown enough through their own sales and acquisitions to have gained staying power—even in the worst downturn in decades.

Virtually all the major EDA companies offer IP. Mentor Graphics, Synopsys and Cadence all sell IP blocks. And companies such as ARM, Virage Logic and Denali have grown large enough, and specialized enough, to have built expertise in the respective areas of focus.           

Tags: ARM, Denali, economics, IP, Synopsys, Virage Logic

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