The current state of the third party IP business reminds me of the state of the third party EDA adoption in the late eighties. Working at Cadence I learnt first-hand how the standardization of the design languages in VERILOG and later VHDL enabled third party EDA tools to be adopted at bigger companies who originally had large CAD development teams. I was involved in several projects with companies such as Siemens, LSI Logic; NEC etc in an effort to promote standards- based simulation and synthesis tools.

A major complaint I faced at those times was from internal CAD teams that their tools are superior to third party tools, being better suited to their design process or methodology. While this was true in some cases, the economies of scale third party tool companies create like Cadence, Mentor and Synopsys overcame these initial objections. Having to depend on a third party to fix bugs or make enhancements is another issue that the big companies had to solve. Fast forwarding 15 years, today third party EDA tools are widely adopted and the chip and system companies have re-tooled their design methodologies to accommodate standard EDA tools.

A similar trend is emerging in the third party IP business where the standardization of design interfaces and the availability of re-useable blocks from quality IP suppliers replacing standard design blocks created internally. Every company wants to apply its scarce resources for building value-add components and building a standard block is no longer a value add. When the chip companies see that the IP guys are already spending time creating standard blocks and ensuring they are up- to- date, they started adopting the IPs for their use. Today if you look under the hood, you will see that every major chip out there has third party IP built in. Every major chip company in the world, Intel, Freescale, Qualcomm etc has adopted standards-based IP blocks built outside.

The third party IP industry started with interfaces like PCI and USB. These standards were defined by industry consortium and their compliance is strictly enforced through plug fests. The first two companies in this space, Virtual Chip and Sand micro systems, were in fact founded by Indian entrepreneurs. The success of these companies helped level the playing field where more fabless? companies came up in ASIA and Europe with chips that talk to other chips in the system through these standards licensed from third parties.