Single-digit growth in semiconductor IP market pushes consolidation

As growth rates decline, small to midsize IP vendors should prepare to acquire other companies, or be acquired, as consolidation has become the key strategy for gaining scale and remaining in the IP market, Gartner suggests.

By Suzanne Deffree, Managing Editor, News -- Electronic News, 6/23/2008

Get ready for a period of single-digit growth in the semiconductor IP (intellectual property) market, one that will encourage further consolidation, according to Gartner Inc.

The research company today warned that as the semiconductor industry adapts to a period of single-digit growth, semiconductor IP vendors need to prepare for an era of single-digit growth rates in the coming years.

According to Gartner, the worldwide market for semiconductor IP grew in 2007, driven by semiconductor vendors' focus on chip integration and cost. However, after three years of strong double-digit growth rates, the market’s growth dipped into the single digits in 2007, as did the growth of the overall semiconductor market. Gartner in March estimated total 2007 semiconductor market growth at 3.6%. Earlier this month, Gartner estimated total 2008 semiconductor market growth will be 4.6% on 2007’s revenue of $273.9 billion.

“Consolidation activity, including mergers and acquisitions, continues to be the key trend in the market, as IP vendors strive to gain market share and technology expertise,” Ganesh Ramamoorthy, a principal research analyst at Gartner, said in the company’s Semiconductor DQ Monday Report this morning.

Based on a semiconductor IP market share survey, conducted between February and April, Gartner estimated that the overall market for semiconductor IP grew by 8% in 2007 for total revenue of $1.9 billion. According to Gartner, ARM held the number one spot in the overall market with a revenue share of nearly 24%.

“ARM dominated the overall IP market with more than twice the market share of second-placed Rambus,” said Ramamoorthy (pictured right). “In the design IP market, MIPS Technologies moved into second place with the acquisition of Chipidea, followed by Synopsys in third.”

The company’s data estimated the design IP market grew by 9% to $1.4 billion last year, while the market for technology licensing grew by 8% to reach $550 million. The processor and physical IP segments grew by 10% and 9%, respectively, in 2007, according to Gartner.

Meanwhile, revenue for analog and mixed-signal IP and fixed-function signal processing IP grew fastest in 2007, at about 34% and 17%, respectively, Gartner projected.

“While the increasing focus on cost and chip integration by chip vendors bodes well for the semiconductor IP market in general, we believe that IP vendors that address the issue of cost of IP integration and software development from the point of view of overall system design are more likely to sustain better growth rates in the coming years,” Ramamoorthy said.

“Moreover, as growth rates decline, we believe that small to midsize IP vendors should prepare to acquire other companies, or be acquired, as consolidation has become IP vendors' key strategy for gaining scale and remaining in the market,” the analyst concluded.