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Xignal tips 'virtual IC' business model

Posted: 16 Apr 2004 ?? ?Print Version ?Bookmark and Share

Keywords:xignal? virtual ic? oem? royalty? ip?

Xignal Technologies AG, a provider of analog and mixed-signal silicon intellectual property (IP), has recast its business model to account for the hollowed-out design teams of potential customers and its own willingness to share some of its licensees' risk. The company's "virtual IC" approach will give OEMs and fabless semiconductor suppliers coming out of the recession full design support without the steep costs of a conventional IP license, primarily by shifting customer expenses from front-end fees to back-loaded royalties.

The new model was basically forced on Xignal by the industry recession, which played havoc with the practice of providing IP and applications support to a licensee in exchange for a fee, generally a non-recurring engineering (NRE) cost.

But reduced engineering budgets have left many design teams without the expertise or head count to take on the next level of integration that their market is demanding. "Many companies have laid off more people than they could afford to lose," commented Al Gharakhanian, VP of business development at Xignal.

The natural next move--to go shopping for either third-party IP or for design services--also proves frustrating. "Sticker shock sets in," Gharakhanian said. To license significant analog or mixed-signal IP or to engage a contractor with sufficient expertise to complete a complex design can involve a big front-end expense, he said. And despite the headlines touting a recovery, "customers are in a bind about risk," Gharakhanian observed. "They see the market coming back, and feel that they have to do the next design to stay competitive. But they are still skeptical about the real depth of demand out there."

The result, some IP vendors admit off the record, has been a major shift from NRE-weighted license agreements to royalty-weighted deals. The IP vendors do this at their peril, since they also have short-term numbers to make, and they may be in a worse position to accept risk than even their customers. But those are the realities of today's market.

Xignal, with $18 million in cumulative venture investment, was in a strong enough position to use this situation to its advantage. Under its new business model for the virtual IC, Xignal engages with a customer as if Xignal were itself an IC provider. The two companies jointly develop the specification for a chip, then Xignal undertakes the entire development, handing over tape at the end of the design.

Xignal charges little or no NRE. The responsibility for establishing a foundry relationship and getting the design fabricated belongs to the customer, though Xignal continues to support the design through fabrication.

Once a chip goes into production, the virtual IC model introduces two significant differences from most IP licenses. First, Xignal's per-chip fee will be much more than the amount of a normal royalty, Gharakhanian said. In this way Xignal recovers its investment in the design, ideally with enough margin to amortize its risks. Second, Xignal retains full rights to the design. Any customer IP included in it must be cross-licensed to Xignal, and third-party IP from other companies will be licensed to Xignal as well. So, subject to a noncomplete clause in a license, Xignal could make itself a fabless semiconductor supplier with the chip if it wished.

"This model will not be for everyone," Gharakhanian said. "Xignal will continue to offer both cores and complete subsystems under conventional IP license agreements. But for companies who are facing on the one hand the very good margins that analog/mixed-signal chip vendors maintain, and on the other hand the extreme difficulty of completing an IC design that includes Gb serial I/O of the sort Xignal does, we think the virtual IC model may be a win-win proposal."

- Ron Wilson

EE Times

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