Comments on: Why the ranks of chip makers are thinning out http://venturebeat.com/2008/09/24/why-the-ranks-of-chip-makers-are-thinning-out/ News About Tech, Money and Innovation Wed, 25 Nov 2009 12:19:57 +0000 http://wordpress.org/?v=2.8.5 hourly 1 By: Ben http://venturebeat.com/2008/09/24/why-the-ranks-of-chip-makers-are-thinning-out/comment-page-1/#comment-862968 Ben Thu, 25 Sep 2008 05:27:30 +0000 http://venturebeat.com/?p=98276#comment-862968 The Semiconductor IP investment claim is somewhat misleading. Yes, Semiconductor IP revenues overall are growing much faster than the broader chip industry, but:<br><br>1. It's a tiny chunk of the broader semiconductor industry (by at least 2 orders of magnitude)<br>2. The companies involved are miniscule in size. Even ARM, the largest of the semiconductor IP players, only has a revenue of $260 million and a market cap of less than $3 billion. The vast majority of players are tiny, one-product shops.<br>3. Each company's revenues are extremely volatile, depending on lawsuits and end-product launches which these companies have no say in, or no real touch in either.<br>4. Each company's margins are razor thin as a result of their small size (fixed costs are enormous, and these companies are trying to increase market share by selling at large discounts) and the relative commoditization of the industry (do you really think these firms can differentiate on the quality of their Ethernet physical interface IP?)<br>5. Larger companies like Synopsys and TSMC have already started entering the semiconductor IP space -- rendering many of these companies essentially defenseless against commoditization by the very players that they depend on to reach their customers. <br><br>Does any of that sound like good prospects for investment? The Semiconductor IP investment claim is somewhat misleading. Yes, Semiconductor IP revenues overall are growing much faster than the broader chip industry, but:

1. It's a tiny chunk of the broader semiconductor industry (by at least 2 orders of magnitude)
2. The companies involved are miniscule in size. Even ARM, the largest of the semiconductor IP players, only has a revenue of $260 million and a market cap of less than $3 billion. The vast majority of players are tiny, one-product shops.
3. Each company's revenues are extremely volatile, depending on lawsuits and end-product launches which these companies have no say in, or no real touch in either.
4. Each company's margins are razor thin as a result of their small size (fixed costs are enormous, and these companies are trying to increase market share by selling at large discounts) and the relative commoditization of the industry (do you really think these firms can differentiate on the quality of their Ethernet physical interface IP?)
5. Larger companies like Synopsys and TSMC have already started entering the semiconductor IP space — rendering many of these companies essentially defenseless against commoditization by the very players that they depend on to reach their customers.

Does any of that sound like good prospects for investment?

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