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Behold the Intrinsic Value of IP

Monday, March 13th, 2017

By Grant Pierce, CEO

Sonics, Inc.

Editor’s Note [this article was written in response to questions about IP licensing practices.  A follow-up article will be published in the next 24 hours with the title :” Determining a Fair Royalty Value for IP”].

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Understanding the intrinsic value of Intellectual Property is like beauty, it is in the eye of the beholder.  The beholder of IP Value is ultimately the user/consumer of that IP – the buyers. Buyers tend to value IP based upon their ability to utilize that IP to create competitive advantage, and therefore higher value for their end product. The IP Value figure above was created to capture this concept.

To be clear, this view is NOT about relative bargaining power between buyer and the supplier of IP – the seller –  that is built on the basis of patents. Mounds of court cases and text books exist that explore the question of patent strength. What I am positing is that viewing IP value as a matter of a buyer’s perception is a useful way to think of the intrinsic value of IP.

Position A on the value chart is a classification of IP that allows little differentiation by the buyer, but is addressing a more elastic market opportunity. This would likely be a Standard IP type that would implement an open standard. IP in this category would likely have multiple sources and therefore competitive pricing.  Although compliance with the standard would be valued by the buyer, the price of the IP itself would be likely lower reflecting its commodity nature. Here, the value might be equated to the cost of internally creating equivalent IP. Since few, if any, buyers in this category would see advantage for making this IP themselves and because there are likely many sellers, the intrinsic value of this IP is determined on a “buy vs buy” basis.  Buyers are going to buy this IP regardless, so they’ll look for the seller with the proposition most favorable to the buyer – which often is just about price.

Position B on the value chart is a classification of IP that allows for differentiation by the buyer, but addresses a more elastic market. IP in this category might be less constrained by standards requirements. It is likely that buyers would implement unique instantiations of this IP type and as a result command some end competitive advantage. Buyers in this category could make this IP themselves, but because there are commercial alternatives, the intrinsic value is determined by applying a “make vs buy” analysis. The value proposition of the sellers of this type of IP often include some important, but soft value propositions (e.g., ease of re-use, time-to-market, esoteric features), the make vs buy determination is highly variable and often buyer-specific. This in part explains the variability of pricing for this type of IP.

Position C on the value chart is a classification of IP that serves a less elastic market and empowers buyers to differentiate through their unique implementations of that IP. This classification of IP supports license fees and larger, more consistent, royalty rates. IP in this category becomes the competitive differentiation that sways large market share to the winning products incorporating that IP. This category supports some of the larger IP companies in the marketplace today. Buyers in this category are not going to make the IP themselves because the cost of development of the product and its ecosystem is too prohibitive and risky. The intrinsic value really comes down to what the seller charges.

This is a “buy vs not make” decision – meaning one either buys the IP or it doesn’t bother to make the product. A unique hallmark of IP in this position is that so long as the seller applies pricing consistently, then all buyers know at the very least that they are not disadvantaged relative to the competition and will continue to buy. Sellers will often give some technology away to encourage long-term lock in. For these reasons, pricing of IP in this space tends to be quite stable. That pricing level must subjectively be below the level that customers begin to perform unnatural acts and explore unusual alternatives.  So long as it does, the price charged probably represents accurately the intrinsic value.

Position D on the value chart is a classification of IP that requires adherence to a standard. Like category A, adherence to the standard does not necessarily allow differentiation to the buyer. The buyer of this category of IP might be required to use this IP in order to gain access to the market itself. Though the lack of end-product differentiation available to the buyer might suggest a lower license fee and/or lower to zero royalty rate, we see a significantly less elastic market for this IP type.

This IP category tends to comprise products adhering to closed and/or proprietary standards. IP products built on such closed and/or proprietary standards have given rise to several significant IP business franchises in the marketplace today. The IP in position D is in part characterized by the need to spend significant time and money to develop, market and maintain (defend) their position, in addition to spending on IP development. For this reason, teasing out the intrinsic value of this IP is not as straightforward as “make vs buy.” Pricing is really viewed more as a tax. So the intrinsic value determination is based on a “Fair Tax” basis. If buyers think the tax is no longer “fair,” for any reason, they will make the move to a different technology.

Examples:

Position A:  USB, PCI, memory interfaces (Synopsys)

Position B:  Configurable Processors, Analog IP cores (Synopsys, Cadence)

Position C:  General Purpose Processors, Graphics, DSP, NoC, EPU (ARM, Imagination, CEVA, Sonics)

Position D: CDMA, Noise Reduction, DDR (Qualcomm, Dolby, Rambus)

Why Customer Success is Paramount

Sonics is an IP supplier whose products tend to reside in the Type C category. Sonics sets its semiconductor IP pricing as a function of the value of the SoC design/chip that uses the IP. There is a spectrum of value functions for the Sonics IP depending upon the type of chip, complexity of design, target power/performance, expected volume, and other factors. Defining the upper and lower bounds of the value spectrum depends upon an approximation of these factors for each particular chip design and customer.

Royalties are one component of the price of IP and are a way of risk sharing to allow customers to bring their products to market without having to pay the full value of the incorporated IP up front. The benefit being that the creator and supplier of the IP is essentially investing in the overall success of the user’s product by accepting the deferred royalty payment. Sonics views the royalty component of its IP pricing as “customer success fees.”

With its recently introduced EPU technology, Sonics has adopted an IP business model based upon an annual technology access fee and a per power grain usage fee due at chip tapeout. Under this model, customers have unlimited use of the technology to explore power control for as many designs as they want, but only pay for their actual IP usage in a completed design. The tape out fee is calculated based on the number of power grains used in the design on a sliding scale. The more power grains customers use, the more energy saved, and the lower the cost per grain. Using more power grains drives lower energy consumption by the chip – buyers increase the market value of their chips using Sonics’ EPU technology. The bottom line is that Sonics’ IP business model depends on customers successfully completing their designs using Sonics IP.

Blog Review – Tuesday, January 10, 2017

Tuesday, January 10th, 2017

Moving on from 4K and 8K, Simon Forrest, Imagination Technologies, reports on 360° video, as seen at this year’s CES in Las Vegas. That, together with High Dynamic Range (HDR) could re-energize the TV broadcasting industry in general and the set-top box in particular.

The IoT is responsible for explosive growth in smart homes with connectivity at their centre. Dan Artusi, Intel, considers what technologies and disciplines are coming together as it introduces Intel Home Wireless Infrastructure at CES 2017.

Announcing a partnership with Renault and OSVehicle, ARM will work with the companies to develop an open source platform for cars, cities and transportation. Soshun Arai, ARM, explains how the ‘stripped down’ Twizy can release the brakes on CAN development.

Some Christmas reading has brought enlightenment to Gabe Moretti, Chip Design, as he unravels the mysteries of CEO comings and goings, and why the EDA industry could learn a thing or two from the boards of spy plane and stealth bomber manufacturers.

Still with EDA, Brian Derrick, Mentor Graphics, likens the automotive industry to sports teams, where big names dominate and capture consumers’ interest, eclipsing all others. This is changing as electric vehicles become a super power to turbo charge the industry.

It’s always good to welcome new blogs, and Sonics delivers with its announcement that it is addressing power management. Grant Pierce, Sonics, introduces the technology and product portfolio to enhance design methods.

Caroline Hayes, Senior Editor

Blog Review – Mon. April 28 2014

Monday, April 28th, 2014

The first PHYs; compute shaders; Accellera Day online; Security and privacy
By Caroline Hayes, Senior Editor.

Mentor Graphics’ Dennis Brophy initially questioned the need for an online Accellera Day, but soon retracted and is even offering to keep blog visitors informed as more are posted.

If you are interested in compute shaders, Sylvek at ARM, explains clearly and concisely what they are and how to add one to an application.

Another informative blog is the first of three from Corrie Callenbach, Cadence, directing us to Kevin Yee’s video: Take command of MIPI PHYS. The presenter takes us through the first of three PHY specifications introduced by MIPI.

Intel’s Mayura Garg points blog visitors to Michael Fey’s presentation at ISS2014. Fey, Executive Vice President, General Manager of Corporate Products and Intel Security CTO focuses on Security and Privacy in the Information Age – the blog’s own ‘scary video’.

Blog Review – Feb. 18 2014

Tuesday, February 18th, 2014

Grand prizes in Paris design; variability pitfalls; snap happy; volume vs innovation

By Caroline Hayes, senior editor

One of the most visually arresting blogs this week is from Neno Horvat at Dassault Systèmes. A fashion parade of projects set against the backdrop of Hôtel National des Invalides, in Paris. The occasion? The Festival de l-Automobile International (FAI) and the Creativ Experience award and the Grand Prix for research into the intelligent car.

Using a blog as a real community jumping point and information service, Shelly Stalnaker’s blog directs us to fellow Mentor Graphics author, Sudhakar Jilla article about the variability pitfalls of advanced nodes design and manufacturing.

Happy, snappy days are conjured up in the blog by ARM’s rmijat, in which he recounts his smartphone photography presentation at Electronic Imaging Conference. One of the week’s most detailed blogs, he takes us through the history of the camera phone to computational photography and future prospects.

Jack Harding, eSilicon, left Las Vegas a richer man, not from a big win, but by reflecting on the prospect of how few companies can bring to market the ICs needed for all the innovation that CES promised.

Deeper Dive – Graphics Processing

Thursday, December 19th, 2013

What you see is what you get

Graphics is playing an increasingly important role today, so System Level Design’s Caroline Hayes asked Jim Wallace, vice president marketing, and Sean Ellis, senior principal engineer, both ARM, what graphics processors had to contend with and what challenges lay ahead.

The draw of multimedia GPUs (graphics processing units) requires more design to be focused on processing performance as well as in the display of tablets, smartphones and TVs to exploit the potential of image applications.

For Jim Wallace it is all about performance: “Video, display and all interconnects, all focus on bandwidth,” he says, yet also the increasing API (application programming interface) and support are important as well as easing deployment of the system into the marketplace.

At the high end, these performance demands will push the power envelope, he predicts. “The aim will be to maximize performance,” he said, adding “While compute performance will be important, bandwidth –in terms of saving bandwidth – will also be important”.

The rise of tablets and smartphones has also created another trend, that of virtualization, with video on individual devices that can be brought into the home and the office. Here, says Wallace, performance is limited by [display] area as well as cost; consumer items are by nature cost-sensitive. Wallace foresees the wearable market also impacting screen sizes at both ends of the spectrum; large screens for infotainment but also shrinking ones for use in watches, fitness and healthcare monitoring, and in applications like Google glasses.

Operating at 60Hz, devices are driving resolution and also driving up bandwidth. At the high end, notes Wallace, the 4k resolution screens will increase complexity further.

As the performance increases, there will need to be higher performance screens, with an increased number of pixels and layers. He warns that all of this has to be achieved in an energy efficient form, either thin form factors or products that do not require a battery.

To achieve this, the CPU has to be helped by offloading tasks to the GPU. Sean Ellis explains how this is put into practice in the company’s most recent graphics processor, the Mali T760, which improves the energy efficiency of the earlier T604 by 400%. Using the ARM Frame Buffer Compression to reduce the system level bandwidth and power required to transfer image data means that the CPU is not overloaded. Smart Composition does not update a frame if that frame has not changed, which reduces both power and bandwidth demands.

As the multimedia age begins to fragment, it looks like the demands of silicon for graphics performance will follow the same varied paths.