August 14, 2006 – Demand for semiconductor intellectual property (IP) is growing at a steady rate well outpacing sales of actual devices, and for more complex IP as well, according to new data from Gartner Inc.

Worldwide IP revenue is projected to total $1.8 billion in 2006, a 24.9% increase from 2005, and will surpass $2.7 billion by 2010. Gartner defines semiconductor IP as predesigned blocks of circuits to be used for making complete semiconductor devices, and defines the market as only including revenue from IP sold on the open market (as opposed to captive IP, designed and used by only one organization).

After a short period of considerable maturity, the next five years will bring major challenges to business models, as demand for IP shifts from standard functions to more complex specifications, noted Christian Heidarson, senior research analyst for Gartner’s semiconductor group.

IP reuse will become increasingly important to chip design, boosting productivity and fueling device integration. “For design teams to keep pace with Moore’s Law, the IP in these complex designs has to get even more complex,” stated Heidarson. “Also, new types of IP are required to meet the demands of the most complex devices, for instance, IP blocks to support network-on-chip architectures.”

The need to customize complex IP products will also create challenges, similar to those faced by design services, such as difficulty in scaling, added Heidarson. “Vendors of highly differentiated IP will need to adapt their business model to pursue large deals with fewer customers,” he noted, pointing out that factors such as delays in market developments or failure from a key customer could be particularly disastrous for smaller vendors.

Another trend to watch: fabless semiconductor companies leveraging application expertise and chip businesses to supply a “significant” amount of complex IP to complement chip revenues, and offset slow licensing periods, noted the report.