Cadence Fellow Chris Rowen and I have talked about this a few times this year. Last week, Kurt Shuler, VP of marketing at Arteris, articulated his version of the story during a presentation at the Semico Research IP Impact event here.
Gorillas in the midst
The simple version of Shuler's argument is this: Companies including Google, Facebook, Apple, eBay, Amazo,n and Microsoft are wielding enormous silicon-design influence today. They're doing it because they can; they're doing it because they have to. Their system needs are so tightly defined and requirements for optimization are so unique that they've had to assemble huge engineering teams to create customized or semi-custom designs.
They're either doing it themselves all the way to the foundry door, or their engineering teams are attached to the hips of their silicon partners.
Shuler said:
"The algorithms you need to do web search are different than what you need to do e-commerce are different than what you need to do social networking side."
In addition, they're often responsible for vast server farms that must be optimized for energy usage. In some cases, 3% of the power flowing into these farms is used for useful data analysis, Shuler said. Referencing an Electronic Design article by Cadence's Arif Khan and Osman Javed, Shuler added that often a third of it goes to cool the system itself. That puts even more pressure on the design team.
Shuler added:
"What big data enterprise companies have is a heat dissipation problem. They are struggling to figure out how can they make servers and routers do a better job of converting power into something useful and not just heat."
So, the traditional silicon vendors are challenged to meet these custom or semi-custom design requests within the confines of their traditional (and non-custom) manufacturing models.
In some cases, these system houses have bypassed silicon vendors and designed their own chips, leveraging commercial IP such as ARM cores.
This
raises the level of fear, uncertainty, and doubt among silicon vendors. 
Sandwich play
So, in Shuler's slide nearby you can see how silicon vendors might be squeezed from cash-rich customers above and by IP vendors below (vendors who could bypass them altogether to get designed in).
Said Shuler:
"The semiconductor vendors are sandwiched. Between these guys who have tons of money to ... design their own chips and these guys down there who are enabling anybody to build chips."
But, for silicon vendors, it's not yet time to hit the panic button. That's because some of these OEM/systems houses won't take on the cost risk of designing their own chips.
In addition, the Googles, Facebooks, and Apples of the world represent a fraction of the world's system OEMs-albeit they're very large and influential ones.
Shuler argues that silicon vendors need to:
- Understand where they best fit on the design spectrum (from COTS to custom)
- Work farther upstream (talking with a Comcast or AT&T) to understand market requirements
- Be flexible and focus on differentiation
The future of IP, EDA
What does this mean for IP vendors? Huge opportunity. Today, IP vendors sit at one end of the innovation food chain. While their value proposition includes design flexibility, IP vendors can struggle with pricing because their semiconductor customers can always threaten to design that particular block themselves.
Implications in this brave new world for IP vendors include:
- Working upstream to understand market and tech requirements better
- Re-engineering business models to get licensed farther upstream
- Reconsidering licensing models
The EDA play
And then there's the consolidation angle. It's no fluke that EDA vendors have been buying IP companies at a feverish pace in recent years.
The technology not only adds a tool to the software sales belt; it facilitates a conversation with customers farther upstream as well.
Brian Fuller
Related stories:
-- What Do Applications Dream About?
-- We Need to Move "Past EDA": Tensilica Founder Rowen