A niche but high-growth semiconductor industry | AI Dehydration

Author: Zhang Yifan

Editor: Shen Siqi

Source: Hard AI

A niche market in the semiconductor industry has suddenly appeared in Bank of America's report.

Bank of America pointed out that although the semiconductor IP market is niche, its importance is rapidly increasing, and the industry is growing robustly. Especially in interface IP, it is expected to achieve high-teens compound annual growth rate (CAGR) in the next 3 years.

Intensified Competition in Wafer Foundries Leads to IP Prosperity, with Interface IP Growing the Fastest

Bank of America stated that the high growth rate in the IP industry is mainly due to countries intensifying their efforts in chip self-production. For example, the wafer foundries of Intel in the United States and some domestic foundries in China, due to the differences in processes and technologies of each foundry, require the development of a whole new set of semiconductor IP solutions to match the new processes, thereby driving the growth of the IP market.

According to data compiled by Bank of America, the growth of interface IP in the semiconductor IP market is particularly significant. In 2023, the interface IP market grew by 16%, while the growth rates of processor IP, physical IP, and digital IP in the IP market ranged from -1% to +4%. This growth of interface IP is mainly attributed to the continuous upgrade of data transmission technology and the demand for faster speeds and larger bandwidth, especially in processing and computing data.

Bank of America predicts that the strong demand for interface IP will continue until 2026, and its Total Addressable Market (TAM) will grow at a high double-digit compound annual growth rate.

Industry Barriers

In addition to high growth rates, the semiconductor IP industry also has high barriers to entry, providing good protection for existing IP manufacturers. The high barriers mainly manifest in the following aspects:

1. Huge R&D Investment: Developing new IPs requires a large amount of talent and resources.

2. Demand for Comprehensive Solutions: The IP portfolio must be broad enough to meet the needs of different customers.

3. Importance of After-Sales Service: Providing strong after-sales service and establishing long-term relationships with customers are crucial for success.

Bank of America pointed out that establishing a successful IP business requires a significant amount of time and investment (at least 5-10 years) to develop a strong product portfolio and attract the necessary engineering talent. Subsequently, an additional 5-10 years are needed to gain market recognition, establish a good track record, and achieve profitability. These factors make it difficult for new entrants to establish themselves and compete with established companies

Relationship between ASIC Manufacturers and IP Manufacturers

However, it is also necessary to pay attention to some competitive risks in the industry.

ASIC manufacturers, as chip customization manufacturers, also use IP modules in the chip design process. Using IP modules (reusable modules or cores) can greatly increase the speed of chip design.

However, some ASIC manufacturers, in order to reduce costs, will develop their own IP cores, thereby competing with IP manufacturers.

Bank of America Merrill Lynch pointed out that ASIC manufacturers develop IP cores more to reduce development costs rather than to compete with IP manufacturers.

Overall, ASIC manufacturers mainly view IP suppliers as partners to leverage their expertise to enhance the services they provide to customers.

IP Manufacturers Worth Watching

Finally, Bank of America Merrill Lynch pointed out in the report that the following IP manufacturers are worth watching:

• ARM: A global leading CPU architecture supplier;

• M31: A Taiwanese IP company specializing in memory controllers and interface IP;

• eMemory: A Taiwanese IP company specializing in non-volatile memory (NVM) IP;