Virtuous innovation cycles

Virtuous innovation cycles

BY CARL SCHLACHTE Chief Executive Officer, BOPS Inc., Mountain View, Calif.

An interesting phenomenon is taking place at BOPS: We conduct weekly "war room" meetings, during which we review customer activity in-depth. Our customer list is growing, not shrinking, which flies in the face of the doom-oriented wisdom that prevails in the semiconductor industry today. If things are as bad as most people believe them to be, why is BOPS, an intellectual-property licensing company, securing more license deals?

Upon closer inspection, the answer is not difficult to understand. Companies such as BOPS rely on virtuous cycles of innovation, cycles wherein one good turn begets another, and these cycles become more pronounced in a downturn. The truth is, there's always room to grow business when you're solving real problems. The semiconductor industry may be in a down cycle, but there are still problems to be solved, which translates into business for those companies with innovative solutions.

Spending controls and layoffs notwithstanding, licenses are still being signed and designs started. Interestingly, the less capital and personnel available, the more innovation becomes a necessity. Put another way, necessity is the mother of invention-or innovation.

With less money to spend and fewer people to design, any investment must have a greater potential return. Just as the board industry went through a historic shift in supply-chain management in the late 1980s and early '90s, the system-on-chip industry is beginning to see the same shift. Generically, this has been termed a platform-based approach-that is, the intellectual property (IP) supplier does more and more of the design for its licensees. I prefer to call it a premium solution, in which the IP vendor undertakes more of the design responsibility for the licensee. In effect, the supply chain has begun to shift to the IP supplier as a main contractor in the design process.

Premium solutions carry higher royalties and license fees as well as a better chance of success in the market. The simple fact is that premium solutions are more likely to be produced. The virtuous cycle completes when the product is purchased.

Contracts and designs actually "bracket" the downturn we are in right now. At the front end of the bracket are technical due diligence on the product, the design win and contract signature. The opposite bracket is the shipping of a product containing the licensed IP. The span between these two activities can be as short as nine months and as long as two years. The surge in licensing activity we see at BOPS is likely a leading indicator of our industry's growth in the one-to-two-year time frame.