This month Virage adds 160 staff from NXP and last month they acquired ARC, another IP provider.
The NXP deal makes sense to me because Virage also receives some design services business to pay for all that new staff.
It seems like the IP business should be a product business where you can sell a qualified logic or memory block multiple times, but I hear that in many cases it becomes a design services business as each client wants some customization to differentiate themselves. If there are economies of scale then adding staff is the right direction to head for Virage.
Virage stock like most of EDA and high tech have been booming since March 2009, so let’s see if they can recover to the 8’s from two years ago.
The services business around IP is kind of tricky. When I was at Synopsys, we often had the IP group approach the services group to help customize IP for a particular customer’s needs. The issues are many:
1) Who will support the finished product? The IP group is only structured to support standard products and the services group is off on the next project.
2) How much is the customer willing to pay? IP development cost is typically spread over many customers and so each customer only pays a portion. But for custom IP, the customer must bear the entire burden. A $50K IP that requires 10% customization might now cost $200K. The customer is probably not expecting that and then starts to haggle that the IP company should “invest” and then sell this to others. It gets ugly.
3) Services are just not as high margin. We, in the services business, found this out every time we wanted to borrow people from the IP group for a project.
4) Ownership becomes a big issue.
Harry
Harry,
Excellent point about how the price of customizing IP carries “sticker shock”.
Cadence at one time made a big play into services only to discover that the margins were too low, then pulled out a large chunk of their service people.
In EDA software I would always ask about any new feature request: Will this help one chip project, multiple projects, or every client?
Also, will this new feature save you one minute, one hour, one day or one week over a one year time frame?
Daniel
Ron Wilson of EDN calls this deal “startling”. OK.
http://www.edn.com/blog/1690000169/post/1010049701.html?nid=3080
Paul McClellan wrote, “But big acquisitions like this have a poor track record and Virage certainly will have their hands full. ”
http://www.edn.com/blog/920000692/post/1300049730.html