It's a dark night in a jungle that knows how to keep its secrets. Lions and other carnivores are out and about looking for prey and the delicacy they're looking to find is IP and the companies that make it - juicy, quality IP, the kind of IP that will fill the coffers and put meat on the table.

Actually, it's possible that not all of the lions are out on the prowl tonight. There may be some that have stayed home to lick wounds incurred during recent foraging expeditions. Within memory, for instance, one of the larger lions was out on the prowl and managed to snag a big one. Unfortunately at that very moment, a full moon broke out from behind the clouds, a combination of external and internal scrutiny showed the deal to be less attractive than it had looked in the dark, and the deal was destroyed.

That lion may not be out tonight, but it's probably not sleeping either. That whole thing was so embarrassing and did so much damage to the reputation of the lion within the larger pride, that it's probably staring at the ceiling and wondering how to proceed.

Of course, there are other lions who may not be out on the prowl tonight either. Those are the somewhat smaller lions who have just succeeded in snagging some pretty juicy prey of their own. They're probably fast asleep because a) they've got their prey in hand, and b) even under a full moon, the deals look pretty good. Tasty, wholesome, and intact.

*****************

Which brings us to Tuesday, August the 24th. There was a phone call at 11:00 am with Mike Kaskowitz, General Manager of the IP Division at Mentor Graphics. He was fielding questions regarding Mentor's recent acquisition of Palmchip Corp.'s parallel and serial ATA IP business. No matter that Mike was (trying to be) on vacation with his family, if questions needed to be fielded, he was going to answer them, come hell or Hawaii.

Then there was an 11:30 am phone call with Arm and Artisan. That was a bigger phone call, more focused, more serious, more intense. There were 5 guys in on that conversation - Jerry Ardizzone, President of ARM Inc. (U.S. operations), Liam Goudge, Director of Worldwide Business Development at ARM, Mark Grof, Business Development Manager at ARM, Mark Templeton, President and CEO at Artisan, and Neal Carney, the Vice President of Marketing at Artisan. They were all prepared to field questions regarding ARM's acquisition of Artisan, announced that very morning.

So here's the update from the jungle.

*****************************

Mike Kaskowitz: "Palmchip is going to focus on being a wireless storage provider. They couldn't be in the IP business and the standard chip business at the same time."

Mike Kaskowitz: "Not at all. What Mentor has is a great business model. We bought the Internet IP business from Alcatel [and that's been a success]. The MoSys deal didn’t not work because of integration pains. It failed because the investors felt that they had way overpaid for the company. At Mentor, we hold firmly to the belief that a couple-X revenue [is an appropriate price to pay for a company]. The MoSys purchases was an order of magnitude bigger than that."

Mike Kaskowitz: "We're not focused on the library business, but Mosys would be attractive purchase [at the right price]."

Mike Kaskowitz: "The IP industry continues to consolidate to larger players. The thing I love about the Palmchip deal is that the company really cares about their customers. A lot of the success of this acquisition was because Palmchip knew that Mentor would protect their customers."

Mike Kaskowitz: "Of course there are never any real guarantees, but we all work very well together. We've transferred a lot of their [customer] agreements. Unbounded indemnification isn't easy for a large company, but we intend to move a number of key Palmchip architects and engineers over to Mentor."

Mike Kaskowitz: "Right now, Mentor is the Number 2 provider of IP. Synopsys is Number 1. Mentor and Synopsys go back and forth in being Number 1 in providing cores. Mentor, however, is becoming more and more active in this area. We've growing the business at 40 percent a year, focusing on a number of different areas including ISB on the go, Etherenet, and PCI."

"Many customers, however, have been inquiring about our providing a serial ATA product. We didn’t have that offering and were often losing business to Palmchip. We decided to approach them and see if they were interested in an acquisition. They were, so we acquired all of their serial products, which gives us the leadership position in storage products."

Mike Kaskowitz: "Every block of IP has its own architect and [associated] product line. Customers rely on that when they buy your intellectual property. We find that by buying a business, we're really buying the whole team. It wasn't like that before when we just bought the technology. Now we go for the model where we license the technology, because you can't get away the fact that IP is 80 percent about development and only 20 percent about the product. Of course, I'm biased because of my involvement with VSIA. [Mike is currently President.]"

Mike Kaskowitz: "As you know, our new VSIA Pillars have generated huge interest in our membership. There's lot of new, active involvement on the board of directors. Companies like LSI are wanting to be involved with the board. A lot of people want to work with us on [this issue of] quality IP. We're seeing, for instance, that Agere has done a great job in getting several companies to work towards IP certification. Over the next year, I predict there will be 2 or 3 third-party [entities] who will be doing certification."

"The one thing that's still lacking, however, is a Consumer Report type of thing. If there were enough business to get a newsletter going, [that would be an interesting effort]. But it's a chicken and egg thing. It's not obvious who would buy the report, but without buyers nobody will take it on."

Mike Kaskowitz: "We'll have their vice president of engineering and the architects for ATA. We've also brought over their VP of market development. He'll be the product line director. It's a fortunate thing for Mentor that the key architect wanted to move back to Lebanon. We've got an engineering group in Cairo - from back when we bought ANACAD, which was founded by an Egyptian. We've got 150 people in Cairo and, from there, are able to cherry pick [talent] out of Cairo University."

"Which shows that IP is not about the location [where the work's being done], it's about who's the expert in a particular area. I'm a big proponent of distributed engineering teams - I'll lead a team wherever it's located. I've got people in my group in Spokane, in San Jose, in the U.K, in Cairo, and in three different locations in India. Whenever we do an acquisition, I work hard to encourage my people to think in terms of buying teams and leaving them where they are."

"That's because IP is really all about relationships, even more than it's about the technology. You have to look at how you create your business - what kind of engineering models you have and where the expertise is. A company has to make trade-offs and in the IP business, there are no cookie cutter models. In the IP business, you [simply] can't survive without flexibility."

****************

Jerry Ardizzone: "From ARM's point of view, at a high level we believe this is a massively important opportunity to take the industry to next level. We've grown in 10 years from a niche in the semiconductor industry to being formidable players today. This acquisition is all about broadening our product reach. ARM and Artisan tend to call on the same customer base, passing each other in the lobbies of our customers. We have complementary sales channels, and together we will provide one compelling solution, one-stop shopping."

"We're moving into the future. Think about the car. ARM is the engine who puts the motor into the auto. For the gears and drive shafts, Artisan has all the nuts and bolts and pieces. So that's our vision - a complete system offering that we can take to our combined customer base. It's significant [that we'll be] working closely together on microprocessor architecture development and standard cell libraries."

"As we get into future products with high-performance super scaleable cores, we'll need high-energy efficient libraries. Our Intelligent Energy Manager is all about getting the technology into the system and processors that allow for significant energy savings. And we have to do a coupled tightly. Both companies are committed to R&D, It's an exciting time."

Mark Templeton: "The argument could be made that it should have happened 3 years ago. But there's been a dramatic growth of use of our IP, a massive growth in the number of licenses. Clearly the industry is heating up with higher demand for IP. Our customers are counting on us for more and more. Now people are betting their company on it. They have to have the IP for product development because it's more cost effective. Our two companies together give us an opportunity to serve the customer. IP isn't a niche anymore. The whole industry wants it to be more powerful than that."

Jerry Ardizzone "It's not always about critical mass. Sometimes it's about a cultural fit, about matching the business models."

Jerry Ardizzone "Artisan doesn't give away their products for free."

Mark Templeton: "The manufacturers pay us millions of dollars for our products. We do provide some products on a no-cost basis - a part of our distribution doesn't include an exchange of money, but it's not just free for the sake of being free. It's just for a more rapid distribution. It's important to realize that a business model doesn't define a company. Even within Artisan, we have different models [for different products]. Other business models have been equally successful for us."

Jerry Ardizzone: "Sometimes product by product, the thing can be pretty complex if you look at the different products we sell. The bottom line is, we're both calling on the customers with the same sales team and having opportunities in front of the design teams. Now, we'll be offering cell libraries, mixed-signal I/O, high-speed interconnect, around cores that ARM can license. It's software that we all have and a mix of business models that varies from customer to customer."

Liam Goudge: "Even within ARM itself, for instance, we have single-use license, multiple-use license, perpetual licenses, architecture licenses. These all exist because [different models] may fit [different] customers."

Mark Templeton: "It's all about what the designers need to be successful. Different teams have different ways of dealing with things."

Jerry Ardizzone: "[The strength of this acquisition is] proven by the massive commitment that each company has to its R&D. If we don't have compelling technology, the customer won't [deal with us]. But they will deal with us [if we're offering] compelling solutions."

Mark Templeton: "Even in our free products, we're benchmarking against our competitors. We have to win bechnmarks based on technical merits."

Mark Templeton: "There are different ways to solve problems. Right now there are 2000 companies who license our products. We have learned how to get through our business and legal issues [in ways] that are very straightforward. If we look across the landscape of IP, [we think the sophistication is there]."

Mark Templeton: "We don't think a third-party certification organization is necessary, although smaller companies may not agree with that."

Jerry Ardizzone: "We're both committed to silicon-proven IP. Our users' experience is good, their out-of-the-box experience. We've put a lot of money [into quality IP]. I'll quote the old IBM adage: 'You'll never get in trouble using IBM.' There's tons and tons of support within ARM and Artisan. There are 250 microprocessor licenses out there with 130 customers for ARM. There are 5000 products at 2000 customers for Artisan. We've got our revenue streams in place and can prove we're in business. [That's what companies are looking for.]"

Mark Templeton: "It's hard to separate out the percentages. Using our current technology, our customers are buying into our roadmap. They want to develop relationships with us because they want to use the same style of product going forward [for future products]. I would say it's 50/50 between technology and people."

Liam Goudge: "We did an agreement with Seagate. For them, it was a big deal to change architectures - the software development, the tool development. There was lots of up-front work with them because they were betting the company on us - that we were going to be there for them, even afterwards. At the end of the business day, you have to be available to your customers."

Neal Carney: "The caliber and reuse of IP distinguishes the IP industry from the design services industry today. There's a critical mass of reuse in the IP model. It's important to make compelling products that people want to reuse. Otherwise, it degenerates into a design services company. If it's just a one-off product, then you're really in a contract design services mode."

Mark Templeton: "We have no view on the matter."

Jerry Ardizzone: "We think highly of both companies."

Jerry Ardizzone: "It's going to continue to be business as usual. Both companies will remain successful and will continue to march forward. Both companies will continue to innovate. In terms of specifics, Mark [Templeton] will join our Board of Director and continue to run the group in Sunnyvale. Artisan Sales will stay intact. We'll go up to 400 or so employees in the U.S [from about 140]. Our management doesn’t see any changes at all."

Mark Templeton: "Lucio Lanza and I will join the Board at ARM."

Jerry Ardizzone: "The important thing to note is that this announcement is about two great companies coming together with almost no product overlap and without any pain or anguish."

Jerry Ardizzone: "We all will."

Mark Templeton: "There will be a great global party - a great IP party. That should be your headline"

*************************

Maybe Mark's right, but I prefer the bit about "The IP Jungle." That's because no matter what all of these guys are telling me, it still feels like a jungle out there. Especially because, short of a few lucky lions, nobody's sleeping. Folks in the IP business are working overtime to establish the industry as legitimate and long-term. And even as we speak, they're out looking around for additional acquisitions/mergers to guarantee that it happens - and of course they're also hoping to guarantee that their company will be the one that's ultimately declared King of the Beasts.

***************

August 25, 2004

Peggy Aycinena owns and operates EDA Confidential. She can be reached at peggy@aycinena.com

Copyright (c) 2004, Peggy Aycinena. All rights reserved.