Table of Contents
The purpose of developing IP and patents
How IP licensing companies make money, and competitive barriers to entry
Who competes in semiconductor IP and patents?
Arm Holdings (NASDAQ:ARM)
Synopsys (NASDAQ:SNPS)
Rambus (NASDAQ:RMBS)
Universal Display (NASDAQ:OLED)
Everyone else
IP is best when vertically integrated
How IP comes to control a supply chain
Can a company break free from an IP-controlled supply chain?
How to Invest In Chip Stocks 2025 – IP, Patents, and A New Era of Invention
If you haven’t read it/watched it yet, check out the first two parts of the 2025 overview of the semiconductor market and the Semiconductor Industry Flow.
How to Invest In Stocks 2025: Top Semiconductor Stocks To Buy January 2025 3
How to Invest In Chip Stocks – EDA Software and the Biggest Merger of 2025?
Intellectual property (IP) and patents are a hallmark of the industrial era and machines that automate work. Starting in the 20th century, semiconductor based computers – machines that automate thinking and problem solving – joined the multi-century industrial trend.
A patent is a governmental decree that gives a company or individual the exclusive right to use an invention for a period of time. Patents also grant the inventor legal rights, including the ability to defend against unsanctioned use of their invention in a court of law.
IP is broader than just a patent. IP may be a trade secret, business process, engineering design, or an invention that could be (but isn’t necessarily) patented. For various reasons, a company or individual may not seek legal protections for IP, but still tries to protect, defend, or keep the IP secret from rivals in order to maintain a competitive edge in business.
Hardware, a physical design of a product, or even a manufacturing machine or process, are often the easiest things to get patented. Software products, by comparison, are notoriously harder to patent. Software generally falls into the IP and trade secrets category as a result.
The 2020s have spawned a new era of semiconductor, manufacturing process, and computing hardware invention. Many semiconductor companies have sprawling IP and patent portfolios, which is what helps give them an advantage in generating and growing profitable revenue.
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In the context of semiconductors and electronics, IP and patents are usually used in tandem with EDA and other manufacturing and design software (like with EDA leader Synopsys, as we discussed in the previous segment of the Semi Industry Flow).
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IP and patent portfolios sit as a foundational part of the semiconductor industry – and the software and IT sector overall. As a standalone reported business (or revenue segment within a diversified business), we expect semiconductor industry IP revenue to top $7 billion in 2025.
For reference, total semiconductor end-market sales are expected to be over $700 billion in 2025. IP and patents are a small sub-industry by comparison, but help unlock massive value for companies that develop electronic products for use by businesses and consumers.
The purpose of developing IP and patents
But why have an IP portfolio? As the saying goes, “there’s no need to reinvent the wheel.” So using pre-made designs – either those developed in-house, or purchased from someone else – can often save an engineering team significant time in an engineering process.
IP can often be customizable too. For example, blocks of microscopic electronic circuitry or logic cores are arranged to build a larger processor for a computer. A company may use these blocks of circuitry as-is, but customize parts of them (or customize their arrangement) based on the specific task they intend the processor to operate.
As we explained in the last segment on EDA software, think of these IP blocks and circuits (and their arrangement) like pre-designed rooms or spaces that can be dropped into the larger design of a high-rise building. There’s no need to design each and every room or space by hand. 6
A company that develops an extensive library of IP like this could gain an advantage in quickly bringing new products to market. Or if the IP has broad appeal, the IP company could sell access to it to other companies to use in their engineering work or products.
How IP licensing companies make money, and competitive barriers to entry
IP and patents are often monetized in two steps: Licensing, a lump sum or ongoing payment which allows customers to design the IP into their own system or device, and Royalties, when an IP company earns a small cut of every sale of chip or product sold utilizing its IP.
There is risk in this type of IP-based business model. Because of the legal protections inherent in patents, IP and patent management companies can get the reputation as a patent troll (or patent shark). There’s vigorous defense of patents owned, but then there’s defense (oftentimes by means of litigation in court) that seeks compensation beyond the actual value the use of a patent provides.
Companies involved in extensive IP licensing and royalties, and especially those exclusively making a business of IP, walk a fine line between trusted partner and unwanted customer operating expense.
Another challenge for any predominantly hardware business (little to no software or service segment) is sustaining profitable growth. IP, like any hardware, has a limited life span. When new products and technology come out, previous-gen IP and hardware based on it loses pricing …