The IP market is growing rapidly. We estimate that in 2011, vendors shipped 10 billion chips that contained at least one licensed CPU core. These shipments increased a commendable 25% in 2011, driven by growth in smartphones and micro­controllers. As good as the 2011 growth number was, however, it fell short of growth in 2010, when the industry sprung back from a cyclical downturn. We expect CPU IP to maintain a 10% compound annual growth rate (CAGR) through 2016 as the market matures and smartphone growth slows.

The mobile category, which includes handsets, tablet computers, and media players, accounts for nearly half of all CPU cores shipped. The enterprise category, which accounts for nearly 20% of the market, spans a mixture of applications, such as PCs, servers, printers, network­ing, and storage (hard drives and optical drives). “Enterprise” is some­what of a misnomer because most of the networking equipment consists of broadband modems, home gateways, and wireless access points that are sold to consumers or small businesses.

Because home networking is in the enterprise category, the home cate­gory comprises only 10% of the CPU-IP market. It includes set-top boxes (STBs), digital TVs, digital cameras, and DVD and Blu-ray players. The biggest growth is in the “other” category. This category soared to 18% of the CPU-IP segment in 2011 compared with 12% the previous year, owing mainly to a large increase in shipments of ARM-based microcontrollers (MCUs). This category also includes smartcard chips. We break out flash storage, which includes USB memory sticks and flash cards, as a separate category.

Market trends continue to favor the IP-licensing model. After passing the 10-billion-unit milestone during 2011, CPU-IP vendors are on track to earn royalties on more than 16 billion chips by 2016. We expect a growing number of chipmakers will analyze the make-versus-buy decision and conclude that licensed CPU IP will maximize gross profit margins. The availability of low-cost IP from small companies will pressure major suppliers to lower their licensing fees and royalties for designs where architecture compatibility is of secondary concern. We expect IP suppliers to respond by offering subsystems containing CPUs plus common peripherals or software, increasing the value of their IP compared with a standalone CPU. Licensees will accept the higher fees. Few have the internal resources to ensure that every processor subsystem is the best in its class.