The Changing Patent Landscape in the Semiconductor Space

conductor

Patents are used extensively in the semiconductor industry. Digital consumer products like smartphones, computers, mobile phones, and televisions all use semiconductors. The global semiconductor industry's revenues for 2019 was $419.15 billion and it is forecast to increase to $831.5 billion by 2024. Currently, Intel holds a 16.2% market share, and it owns over 40,000 patents in the semiconductor space.

Two acquisitions that can potentially have major impact on the global semiconductor industry, including Asia, are that of the NVIDIA-ARM sale and the AMD’s purchase of Xilinx.

ARM's Proposed Sale to NVIDIA Stuns Global Tech Industry

nvidia and arm

NVIDIA, a U.S. company, agreed to buy UK company ARM from Softbank for $40 billion, according to a statement released in September 2020. The deal requires regulatory approval from the U.S., UK, EU, and China to ensure that Antitrust laws aren’t violated.

The NVIDIA-ARM deal approval in all of these markets will have its own positive and negative impacts on the Asia-Pacific region.

NVIDIA's acquisition of ARM could be a “nightmare” for China as this can lead to the U.S. government's possible intervention in the region. China fears that the U.S. could limit its access to technology from ARM. If this happens, Chinese companies may suffer losses from possible sanctions the U.S. government can exercise through NVIDIA.

The U.S. has already blacklisted Huawei Technologies over accusations that the Chinese government uses the company for espionage. Companies that want to continue selling to Chinese companies need to obtain licenses from the U.S. Commerce Department.

ARM's business model uses licensing of its patented chip designs to technology companies, including those based in China. These chips are crucial for smartphones. Approximately 180 billion smartphones have chips with ARM's processor cores and China is a large market for ARM accounting for twenty percent of the company’s 2019 revenue.

Another concern over the acquisition stems from a potential conflict of interest. Currently, ARM maintains a neutral role as a technology enabler. It licenses its patented technologies to different companies but does not compete with them. In essence, companies that use ARM’s architecture pay royalties for every chip purchased. This can change if NVIDIA succeeds in acquiring ARM.

ARM’s acquisition could give NVIDIA capabilities in graphic processing, which are necessary in AI computing. Some of ARM’s licensees engage in AI development. However, NVIDIA isn’t in any way required to continue ARM’s neutral stance. As a result, NVIDIA has the potential of directly competing with many of ARM's existing licensees. Meanwhile, the acquisition could likely create a positive effect in Asia’s IT sector. It could spur growth in Asia’s microchip industry. As fears over NVIDIA’s influence on ARM’s market increase, local IT players could step up and offer solutions that would protect Asian tech companies from uncertainties.

In fact, China’s Alibaba Group Holding and Taiwan’s Andes Technology have already rolled out their microprocessors for internet-connected devices. These are alternatives offered to local companies shielding them from the impact of ARM’s acquisition. Their sales are expected to surge as Chinese and other Asian companies look beyond NVIDIA and ARM’s technologies.

The NVIDIA-ARM deal could also create a stronger competition against Intel. Consumers will have a better alternative with the combined efficiency of ARM's server CPUs and the capability of NVIDIA's graphic processing units. Together, they can offer better products than what Intel currently offers.

AMD to Acquire Xilinx for $35 Billion

amd Chip

Advanced Micro Devices (AMD) recently announced they have entered into a definitive agreement for AMD to acquire Xilinx in an all-stock transaction valued at $35 billion.

AMD holds patents for semiconductors used in consumer electronics and data centers. Its processors power Amazon’s and Google’s cloud computing centers.

Xilinx, on the other hand, has over 4000 patents primarily focusing on high-end field-programmable gate arrays (FPGA). Some of these patents are integral to data centers, which are critical for cloud-services.

While both are U.S. companies, they reported different setbacks as a result of the sanctions that the U.S. government imposed on China.

The Asia Pacific region is the world's biggest market for semiconductors, accounting for 60% of global semiconductor sales. China accounts for over 30% of the region's semiconductor purchases. For both AMD and Xilinx, China is their biggest market.

Before the United States imposed sanctions on China, Xilinx’s sales to Huawei accounted for 6-8% of its total revenues. The sanctions resulted in lower revenues for Xilinx. As for AMD, the company was able to obtain a license to continue selling to Chinese companies. In effect, AMD’s license allowed it to overcome the problems associated with the U.S. sanctions on China.

Meanwhile, an AMD purchase of Xilinx can result in the creation of data centers with enhanced computing power. This can help AMD provide search services using AI or build its own hardware. Aside from that, the combined entity would be able to broaden its product offerings as well as expand into industrial segments.

While it presents certain advantages for AMD, the combination of these two companies won't have the same impact on the semiconductor industry as the NVIDIA-ARM deal. The NVIDIA purchase of ARM can potentially change licensing for patents that ARM has been granted. This doesn’t apply to the AMD-Xilinx deal because both firms keep their patents within their organizations.

What the AMD deal would do is to give the company a bigger chance of capturing market share from Intel.

Xilinx is considered as Intel's biggest competitor because of its patents on programmable chips. These chips are critical for automobiles and data centers. Once AMD acquires Xilinx, it will have the ability to access Xilinx's patents and use them to create next-gen chips on CPUs, GPUs and in application-specific integrated circuits (ASICs). ASICs have a wide variety of applications ranging from e-commerce to AI chatbots.

Intel, however, has the capability to deliver the full lifecycle of FPGAs to ASICs. Both Xilinx and AMD don't have the in-house capacity to scale FPGA cores in the same way that Intel can.

It will be interesting to watch the semiconductor space evolve in the near future.

Categories: Patents