Semiconductor IP licensing

Semiconductor IP licensing is how chip designs earn money without a factory. The owner of a design lets other chip makers use it, for a fee paid once to start using the design and then a small payment on every chip shipped. The small payment is called a royalty. IP stands for intellectual property.

Here is how it works in general. A company designs a block of a chip, such as a processor core. It does not make chips itself. Another company that wants to build a chip, for example an Indian chip designer, signs a licence. It pays an upfront fee, often tens of crores of rupees, for the right to use the design, plus help from the owner's engineers. The licensee builds its chip with the block, has it made in a factory and sells it. For every chip sold, the licensee pays the owner a royalty, often a small percentage of the chip's price. So when a design is used in billions of chips, the owner earns for years from the same work.

There are two common kinds of licence. In a core licence, the owner gives a ready design that the licensee builds into its chip. In an architecture licence, the owner gives only the rules of the instruction set, and the licensee designs its own core. A royalty is either a small percentage of the chip's price or a fixed amount for each chip. The licensee saves years of design work. The owner shares in the success of every product. The licensee, however, depends on the owner's later designs and on the owner's terms.

Take, for example, a company that designs a processor core. A phone chip maker licenses it, pays the fee, and pays a royalty of tens of rupees or more for every chip sold; see processor IP licences. Consider a graphics block licensed in the same way; see graphics IP. Imagine a start-up that cannot afford to design a processor and licenses a ready one, or uses an open design as in RISC-V.

The licence model supports fabless companies and the choice of instruction set. Winning a place in a customer's product is covered in design win. The chip design process appears in chip design flow.

How is it different from selling chips? A chip maker sells a physical chip. An IP owner sells the right to use a design and is paid again for every chip made with it.