Business Model Based on Partnerships

How does a chip come together for your phone or tablet? What is the IP licensing model like and how does it affect us?
The IP licensing business model. A love story. - Mobile 2 Alexandru Voica works for Imagination Technologies. His background includes research in computer graphics at the School of Advanced Studies Sant'Anna in Pisa and a brief stint as a CPU engineer, working on several high-profile 32-bit processors used in many mobile and embedded devices today. You can follow Alex on Twitter @alexvoica.

Some months ago my colleague Rys Sommefeldt wrote an article offering his (deeply) technical perspective on how a chip gets made, from R&D to manufacturing. While his bildungsroman production covers a lot of the engineering details behind silicon production, it is light on the business side of things; and that is a good thing because it gives me opportunity to steal some of his spotlight!

This article will give you a breakdown of the IP licensing model, describing the major players and the relationships between them. It is not designed to be a complete guide by any means and some parts might already sound familiar, but I hope it is a comprehensive overview that can be used by anyone who is new to product manufacturing in general.

The diagram below offers an analysis of the main categories of companies involved in the semiconductor food chain. Although I’m going to attempt to paint a broad picture, I will mainly offer examples based on the ecosystem formed around Imagination (since that is what I know best).

A simplified view of the manufacturing chain

Let’s work our way from left to right.

IP vendors

Traditionally, these are the companies that design and sell silicon IP. ARM and Imagination Technologies are perhaps the most renowned for their sub-brands: Cortex CPU + Mali GPU and MIPS CPU + PowerVR GPU, respectively.

Given the rapid evolution of the semiconductor market, such companies continue to evolve their business models beyond point solutions to become one-stop shops that offer more than for a wide variety of IP cores and platforms, comprising CPUs, graphics, video, connectivity, cloud software and more.

For example, Imagination has recently announced an entire range of reference IP platforms designed to accommodate the rapidly shifting IoT market. Take the smart sensor IP platform below: not only does it include the full hardware IP required to build a chip (a MIPS Warrior MCU and an Ensigma Whisper RPU), but it also comes pre-bundled with all the additional software required to connect the device to the cloud (the FlowCloud IoT API). Moving up the performance ladder, we find the connected audio IP platform, built around Caskeid – an innovative combination of hardware and software IP that delivers pitch-perfect wireless audio streaming.

IP platforms using MIPS, PowerVR and Ensigma

Revenue model

For any new deal signed, the IP vendor will charge an up-front premium called a license fee.
Based on factors such as the complexity of the IP, cost of development, target applications and expected volumes, a license fee can vary from 100,000s to 1,000,000s of dollars.

Once products using the IP start shipping, the vendor will also receive royalties. They represent a fraction of the total chip cost and can be between a few cents to tens of cents, depending on a range of factors, including the ASP (Average Selling Price) of a processor.
The royalty rate also varies over time as companies move to larger volumes.

Revenue vs. investment curves for IP

The diagram above shows you how the ideal relationship between investment and revenue for IP; notice how companies must make a significant financial investment if they want to see a jump in revenue once that piece of IP reaches maturity.

The revenue curve assumes that mature IP eventually ships in extremely high volume, generating a significant return on the initial investment.


In terms of deliverables, there are generally two types of licensable hardware IP:

  • Off-the-shelf processor IP: fully designed and pre-verified RTL code (e.g. a PowerVR G6230 GPU) configured according to a customer’s specifications. This sounds like a trivial process but actually can turn out to be a very complex task; for example, you can read this article that describes how Imagination helps customers pick a PowerVR GPU for a 4K DTV and a smartwatch.
  • Architectural license: the semiconductor vendor receives the rights to design their own hardware implementation based on a set of specifications. Typically, an architectural license is granted when a silicon company with a significant internal design capability wants to radically differentiate from the competition or when it wants to target a specific market that is not served by existing, pre-designed off-the-shelf processor IP (or sometimes both). Some IP companies simply hand over the handbook and an architectural validation suite for a hefty fee and wash their hands clean; others take a different approach, working with the architectural licensee to offer a skeleton on which the SoC designer can build on (if needed).

Read When SoC met IP to learn more about the implications of licensing off-the-shelf IP and/or an entire hardware architecture.

Any license has complex legal implications but generally an SoC company looking to purchase IP will be presented with three options:

  • Single use: the silicon vendor is licensing one IP block (e.g. a MIPS P5600 CPU) for use in one chip
  • Multiple use: the silicon vendor is licensing one IP block (e.g. a PowerVR G6200 GPU) for use in multiple chips (e.g. a mobile SoC and a TV chip)
  • Subscription: the silicon vendor has unlimited access to an entire family/generation of IP (e.g. PowerVR Series6) and can use it in multiple chips

In addition, many IP vendors develop in-house physical IP to help SoC designers hit specific targets. Take the Design Optimization Kits (DOKs) for entry-level PowerVR Rogue GPUs for example: it is essentially a pre-verified package guaranteed to fit in a certain silicon area – a vital requirement for that specific market; there are also DOKs optimized to hit the high performance efficiency goals of the premium market.

Imagination + Synopsys DOK

DOKs are usually created for two processors in a family: the most popular (e.g. PowerVR G6200) and the smallest (e.g. PowerVR G6100).

The combination of the two guarantees you will likely hit the maximum number of customers interested in licensing from any given generation of IP.

Fabless semiconductor vendors

Fabless semiconductor companies like Actions Semiconductor, Allwinner Technology, AMD, Broadcom, Marvell, MediaTek, Microchip, Qualcomm, Rambus, Rockchip, Realtek, Xilinx – and the list goes on – are designers of the semiconductors that power many of our electronic products.

There are two main routes for fabless chip makers to design (parts of) an SoC: license from an IP vendor or produce your own in-house design. According to a recent chart presented at the 2015 Imagination Summit in Santa Clara, designing in-house processors takes 3-4 years and costs between 100-200 million dollars, on average. Meanwhile, licensing IP cuts the cost to $10-$50 million and reduces design time in half.

Another remarkable phenomenon is the degree of consolidation occurring in the semiconductor space; in the last three years alone, there have been some huge mergers and acquisitions – NXP/Freescale, Avago/Broadcom, and Intel/Altera being the most recent examples.


One aspect that usually goes unnoticed is the amount of effort that goes into marketing a chip. Gone are the days when all you had to do is take a design into mass production and then simply count on the OEM to do the rest of the heavy lifting for you; now semiconductor vendors have to produce full reference platforms (notice a trend here?). Some even become a full-fledged OEM and start selling directly to consumers.

This occurs especially in regions like Asia where OEMs rely heavily on chip makers to ‘hunker down and git’er done’ – and sometimes that even means building a fully-certified, ready to ship device. Through collaboration with OEM/ODMs some semiconductor manufacturers are changing their value proposition and helping to deliver more complete devices to consumers.

Intel smartphone reference design

Finally, the consumer gets a device that costs considerably less than a similarly-specced flagship product.

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