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Posts Tagged ‘ESD Alliance’

Determining a Fair Royalty Value for IP

Monday, March 13th, 2017

Gabe Moretti, Senior Editor

The legal case between Apple and Qualcomm made me ask: “What is a fair royalty a supplier can charge a user?”  The answer is not clear, since the product that uses the IP can benefit in many different way from the IP.  I asked a few questions to exponents of the IP business and I received answers that, even if they do not provide one solution, clear the issue significantly.

In this article I will cover answers from Robert (Bob) Smith, executive director of the ESD Alliance, Warren Savage, general manager of IP at Silvaco, Farzad Zarrinfar, Managing Director of Novelics, Mentor Graphics, and Grant Pierce, CEO of Sonics and also Chairman of the Board of the ESD Alliance.

I am publishing Grant’s response as a separate article with the title: “Behold the Intrinsic Value of IP “.

It must be noted that the ESD Alliance has launched a project called “IP Fingerprinting Initiative” using technology from Silvaco.

Chip Design (CD): Should royalties be fixed at a certain amount regardless of the sale price of the unit that use the licensed IP? Or, should royalties be a percentage of the price charged to the customer of the end product?

Robert Smith (RS): Royalties should be based on value provided. Value comes in many forms, such as how much of the functionality of the end product is provided by the IP, the risk and time-to-market reduction, and design and verification cost savings. There is no simple formula for IP royalties. In fact, they can be quite complicated.

Warren Savage (WS): Business models used for licensing royalties are ALWAYS a negotiation between the buyer and seller with each party striving to optimize the best outcome for their business. In some cases, the customer may be willing to pay more for royalties in exchange for lowering the upfront licensing costs. A different customer may be willing to invest more upfront to drive down the cost of royalties. Calculation of the actual royalty amounts may be based on a percentage of the unit cost or a fixed price, and each may have sliding scales based on cumulative volumes. Both parties need to derive the value that fits their own business model. The IP user needs to arrive at a price for the IP that supports the ROI model for the end product. The IP supplier needs to ensure that it receives sufficient value to offset its investment in IP development, verification and support. It is able then to participate in the success of the buyer’s product based (at least in part) on the value of the IP provided.

Farzad Zarrinfar (FZ): No. It will not be practical.  Royalty is a form of payment for IP licensing. Using royalty-based payment, IP providers can share the business risk and rewards with IP users.  Royalty is typically “negotiable” and is dependent to a variety of parameters such estimated volume, estimated product life, IP value, the amount of R&D invested in IP development, the business model for IP suppliers, competitive landscape for IP, and others. In reality, good relationships between IP users and IP providers are important in developing a win-win business model.  IP royalty is negotiable. However, some of the most utilized models are:

  • Royalty fee, as a percentage of end product selling price (i.e. the selling price of packaged IC)
  • Royalty fee, as a percentage of end-product cost (i.e. die cost)
  • Royalty fee, as a percentage of wafer revenue that the foundry generates
  • Royalty fee, as a portion of cost saving that IP providers offer to IP users.

CD: What is the intrinsic value of an IP?

WS: An IP has ZERO intrinsic value in of itself. The value is completely dependent on the application in which it is used, the ability of the IP to offset development costs and risks and the contributions it makes to the operation and success of the target product. For example, an IP that is developed and ends up sitting on the shelf has no value at all. In fact, its value is negative given the resources and costs spent on developing it. Size doesn’t matter. An IP that has hundreds of thousands of gates may command a higher price because the IP supplier needs to sell it for that price to recoup its investment in creating it.  A small IP block may also command a high price because it may contain technology that is extremely valuable to the customer’s product and differentiates it significantly from the competition. The best way to think about intrinsic value is to think of it in the context of value delivered to the customer. If there is no apparent difference in this regard between an IP product from two or more suppliers, then the marketplace sets the price and the lowest cost supplier wins.

FZ: It depends from various situations such as;

The value could be related to the cost saving for IP user. In the slide below, several cost savings have been calculated.

The value could be related to the time-to-market saving or the saving for IP implementation. These will impact “build vs buy” decisions.


How many times can the owner of the IP charge for its use in the same system to the same customer?

WS: This again is a negotiation determined by the buyer and seller. As long as both parties receive what they perceive as fair value, there is no magic number.

FZ: If I understand your question correctly, the typical licensing model is “step-function” or “flat”. In step-function, IP providers offer a licensing fee for “First-Use”, “first-re use”, and “second re-use & beyond”. Therefore, the more designs customers do, proportionally, more IP builders generate revenue. In addition, royalty revenue for differentiated IPs offer scalable business for IP providers. Therefore, more successful and higher volume the chip supplier gets, will also benefit IP provider by royalty.

Royalty can be paid in several forms. Following are several popular royalty payments:

  • Per parts
  • Per wafer
  • Buy out
  • Buy down
  • Royalty with Cap
  • Royalty with step function

It is also important to structure a solid tracking system to track and verify the proper value of paid royalty. In this case, as President Ronald Reagan said “I trust you, but I need to be able to verify”.

CD: How can the owner of the IP protect it from illegal use by customers?[NVC1]

WS: This is the great problem we have in the IP industry today. Approximately 99% percent of IP is delivered to customers in source code form and IP companies rely on the good faith of their customers to use it within the scope of the license agreement. However, there is a fundamental problem. Engineers rarely know what the usage terms and restrictions of the agreement their company has with the IP supplier, so it is quite easy for a semiconductor company to be in violation—and not even know it. New technologies are coming into play, such as the IP fingerprinting scheme that the ESD Alliance is promoting. Fingerprinting is a “non-invasive” approach that protects both IP suppliers and their customers from “accidental reuse.”

RS: IP suppliers can utilize The Core Store (www.the-core-store.com) at no charge to showcase their products and register “fingerprints” of their technology. Semiconductor companies can use this registry to detect IP usage within their chips by means of “DNA analysis” software available through Silvaco.


[NVC1]Warren and Bob changed the question a bit.

Collected Thoughts About DAC

Tuesday, May 24th, 2016

Gabe Moretti, Senior Editor

The Design Automation Conference (DAC) will be holding its 53rd event.  This means that DAC is older than the EDA industry.  At a time when companies and consortia strive to underscore the importance of “system” in its heterogeneous components, DAC continues to focus on system on chip (SoC), especially if you look solely at the exhibits floor.  DAC has always emphasized chip design, and the number of FPGA and PCB tools shown in the booths is much smaller than the importance both these tools in system design demands.

Austin Skyline

I sent out a brief questionnaire a few weeks ago that asked only five questions about DAC.  Here are the results, edited to preserve anonymity.

Why are or are you not exhibiting at DAC?

First of all none of the companies not exhibiting responded, but I have to assume that there are some on my list that will not be there for various reasons.  Here are some of the responses.

-          We exhibit for many reasons. Foremost, we are there to meet existing and potential customers. It’s also an opportunity for us to analyze technology trends and validate our product roadmap.

-          Our company is exhibiting at DAC because it is a great venue to meet with our existing and new virtual platform customers, catch up with partners and the press, and learn about new technologies and products.

-          We do as always plan to exhibit at DAC.   Since our team is global it is important for us to convene as often as possible as DAC is a great place for this.

-          DAC gives me a target customer base to help me get the word out.  Also all the prototyping vendors are there and I need to be one of them also.

-          DAC  is the premiere conference for the design automation industry.   We use the DAC conference to make announcements of new products and new product features for our platform products.   DAC is an excellent venue to provide design automation users, industry press and industry partners with exposure to our products.

Exhibits draw a crowd

To get a point of view from one of the DAC sponsors I asked the same questions to Bob Smith the new and very energetic Executive Director of the ESD Association.

-          The ESD Alliance is exhibiting at DAC because we want to share our new vision and mission with attendees. DAC shares this vision as well since it has expanded the scope of the conference to include IP, embedded systems and the like. DAC is a great venue for us to spread the word and have one-on-one interactions with folks who might have been involved with us (EDAC) before but are not current on our new charter and direction.

-

The bottom line is that in an age of virtual communications and various means to express ideas, it is still valuable to assemble in one place, look one another in the face and exchange opinions, ideas, and even emotions.  To be at DAC is a signal that the company has something to offer and is real.  Unfortunately some segments of our industry are not covered, PCB is a glaring example, or not covered well at DAC, so there are companies that do not exhibit at DAC because they feel the business of DAC is irrelevant to them.

What is the thing that DAC does best?

Participating to DAC as an exhibitor is a costly enterprise.  The exhibit fee, the booth, the staff, months of preparation, all adds up to a significant amount, no matter if you are a small start-up or a large established company.  So I wanted to know what DAC does that makes them come back.

-          It creates a lively environment for information exchange and networking.

-           DAC brings together the entire EDA/ semiconductor ecosystem, though one improvement would be to attract more attendees and exhibitors in the embedded software space.

-          The most important takeaway from DAC is the conversations that we have on the floor. Entire new product lines have been birthed by these conversations and just listening to the needs of the engineers we meet is extremely important.

-          It is a great training ground for our new people, since they are asked many questions and get to work alongside more seasoned employees all day, and there are many educational opportunities in the conference program.

-          Brings in Design Engineers and management to update them on the latest offering from vendors and hear technical paper of new ideas.

-          The DAC conferences are well organized by the promoters and bring all of the design automation industry into one venue for a few days.    DAC provides our company with the opportunity to meet customers, potential customers, press contacts and industry partners in one physical venue.   It is efficient for us to exhibit at the conference and to meet with a variety of industry participants all at one time and in one place.

And from Bob I heard:

-          It brings together both the academic / research side of our industry and the commercial side into one venue. It’s a great networking opportunity as well.

Once again the idea that virtual communication is not enough.  Discussions based on the internet alone are not enough to build an efficient team from a number of professionals that do not know each other personally and thus do not fully trust each other.

Networking is a major DAC activity

The greatest asset of DAC is its longevity.  The capacity to hold the conference for 53 years in a row has made DAC the place where one meets and shares ideas and opinions.  It is the place to go to see what is new.  It was once the place to strike significant deals although with the advent of internet marketing, big deal are no longer made at the conference.

What would you improve?

-          The exhibit floor can get noisy. I recommend reducing the decibel levels in some exhibits. The conference should create a non-overlapping schedule between exhibits and technical sessions. During the sessions, activity on the exhibit floor slows way down.

-          DAC is valuable in terms of both the exhibits and the technical conference, the business model of course needs to make sense for the organizers. Last year there were 2504 paid passes, 1889 free exhibits-only passes and 2618 exhibitor staff registrations which gives you the idea.

-          Trade shows in general are just a necessary part of the equation. They are costlier than they need to be, like all shows, due to the many add-ons by the venue, but we take it in stride and just budget for it.

-          There should be more press coverage on ASIC prototyping and Emulation -  This task is a must for all ASIC being developed today.

-          I hope they will move to Santa Clara convention center.  Most of the target companies are in San Jose area and companies would send more Engineers to DAC in San Jose area because they could meet with their local company or companies they work with.   I bet you would double the attendance at DAC by moving to the San Jose area.   Santa Clara convention center is the best for parking and hotels.

-          Promoting a company at DAC is a little expensive.      It would be nice to have lower cost promotional options at the conference.   It would also be more convenient for our company if the conference were permanently located in San Francisco (instead of Austin) since we and many other industry participants have offices in the Bay area.

Is this just to be different?

To answer this question Bob expanded the horizon of DAC to address the definition of “system” to the one I like the best.

-          Expand the focus on system design to include the entire design ecosystem. By “system” or “ecosystem” we mean the IP, chip(s), package, interconnect, and embedded software. DAC is evolving in this direction, but it should be expanded.

The issue of noise is a recurring issue at DAC.  In spite of all the measures taken by MP Associates, the noise level in some areas of the exhibit floor really impacts the conversation in those booths.  Unfortunately, the originators of the noise seem to be those booths that have popular entertainment appearances that draw relatively large crowd around the booth.  Clearly the cost of exhibiting at DAC is significant, and grows each year.  The conference is trying to stay away from San Francisco because that city is now very costly.  I think that DAC will have to find a way to fit in smaller convention centers while still maintaining the quality of papers and the broad coverage of issues.

The main problem with DAC is that it is still a chip design conference, and has not enlarge its scope to cover all aspects of systems design.  It needs to embrace electro/mechanical issues, software/hardware co design, FPGA versus ASIC.  Wouldn’t be nice to have the ability to evaluate the majority of system issues before the system is mostly designed?  What if it were possible to know in advance thermal and noise characteristics of the IP one is considering to use?

In your opinion if the exhibits did not financially support the technical conference, would DAC have fewer attendees?

Although this topic is not widely discussed in the DAC arena, everyone knows or will soon find out, that the exhibit fee pays for more than just the exhibit area.  Without exhibit attending the technical program would cost significantly more.

-          Yes, while the two groups don’t overlap, exhibitors subsidize the cost of the technical conference registration. Without that subsidy, attendance could drop off due to budget constraints.

-          Hard question – depending on the technical papers.    If no vendors, then the papers could be on Youtube or DAC video web site.     Besides the papers and the vendors, DAC is a place to meet fellow Engineers, make new friends and visit with old ones.    Thinking more about you question I bet DAC would stop if you didn’t have exhibits – I bet this does carry most of the cost of DAC.

-          We don’t know the value of the subsidy or how the loss of the subsidy would affect attendees.

And of course Bob knows since he is on the inside.

-          Yes, because the cost of entry would go up dramatically to provide the same level of conference program.  It would result in a smaller technical conference.

The issue of the cost of exhibiting at DAC is a serious one.  Travel costs are mounting yearly and so do the cost of the conference facility.  Anything outside Silicon Valley is inconvenient, including San Francisco.  Since part of the cost of renting a booth space at the conference includes in part a subsidy to keep registration fees as low as possible, this aspect needs to be considered.  Are too many parallel tracks being offered?  Are we doing things just to fill unused space?

Do you think that giveaway at the booth generate increased sales?

Every year I see engineers walking the aisle on the exhibit floor with bags full of giveaways.  It seems the main reason to come to DAC is to collect “stuff” not to explore products.  Yet exhibitors bring all sort of stuffed animals, small toys, and other handouts to attract visitors to their booth.

-          Not directly. They can create a buzz about the company and help to drive booth traffic.

-          I think that most engineers are actually more motivated to explore new tools and methodologies they can use professionally, than to pick up freebie giveaways. Although some are fun!

-          As far as giveaways, it just depends. Sometimes they are a hit and bring traffic, sometimes they bomb. We keep trying new things and in the end sometimes it really is just fun to see people happy when you give them something, whether they turn out to be a customer or not.

-          It did not work for us.  Maybe if I can away $5 bills, I would get more traffic at the booth, but would I get new customers.  Most likely no.

-          No, not directly.    The giveaways generate a small amount of goodwill and act as a reminder about the company giving away the item.    They alone do not generate increased sales.   The giveaways act in a very small manner as one of many similar small items that help push a customer toward purchase commitment.      Customers purchase products based upon a clear demonstration of need, not because they received a giveaway.

Bob defended the use of giveaways and made the point that their use is not to increase sales but to provide a material reminder of the company.

-          Giveaways are best at building brand awareness, especially for newer companies in the space. If an attendee is carrying a visible giveaway, it could drive traffic to the company’s booth. For that reason, they are valuable for gaining mindshare, which can ultimately lead to increased sales. The correlation between giveaways and increased sales is a second-order effect.

Well, some of the “gifts” are either useful or cute, so go on and hand out stuff.  After all the cost of giveaways is a small part of the entire DAC budget.

Conclusion

The most important item I extracted from these questions is that no one dares to miss DAC.  If you are not there, you are no longer in business, and that includes the press.  The structure of DAC requires a larger venue than most localities offer, including San Jose or Santa Clara.  A significant amount of restructuring would be required in order to hold DAC in Silicon Valley.  In my opinion this could be done but one of the problem facing DAC is that it is sponsored by more than one organization, and they have different missions and different interests, including financial ones.  When it comes to money it is always difficult to depart from the known model for an unknown one.  As far as giveaways are concerned, I think the solution is experience.  This will be my 38th DAC and I have stopped colleting “souvenirs” at least fifteen years ago.  Just too much stuff to bring back on the plane and then find a way to put in the trash without guilt.