IP and patents are the gold reserves of the semiconductor industry

Whether it's a multi-billion dollar fab or a small 10-member semiconductor design team, the IP and patents are the real assets of semiconductor companies. From world's number one chipmaker Intel to pure IP providers like ARM and Arasan, semiconductor industry in thriving due to the knowledge assets they have built in the form of IPs. Today's SoC class chip is an association of IPs working together like a system.

If a new investor has billions of dollars to start a chip manufacturing facility, the investor has to pay hefty royalties to the IP owners to buy the process and other key IPs both in manufacturing and design areas.

That's where TSMC and UMC have born to offer only fab facilities, they know how to make advanced chips, but they don't own much of the chip designs IPs. So instead of getting caught in legal battle by making already available devices they decided to rent their fab facility for chip designers.

Smart companies like Qualcomm, Broadcomm, Altera, Xilinx and hundreds of such fables companies are only focusing on design and getting it manufactured mostly through TSMC, Chartered and UMC.

Over the period, when the industry moved from micron nodes to nanometer nodes, fabs mentioned above started building own manufacturing IPs and started owning lot of patents.

Now the new fabs like SMIC getting grilled in patent battles with established fabs. Easy way out is to compensate the patent holder or buy the IP. Finally loosing money.

Companies like SMIC looks like a toddler or a baby in front of established semiconductor companies, making it more challenging for new semiconductor manufacturers even to survive among the grown up companies.

So, do you own a valuable IP or create a valuable IP, there is lot of room for energetic entrepreneurs but as a fab investor it's not easy, got to give away lot of profits to IP owners and also should have promising end market, just like SMIC which has a big growing market for its chips in China. Too risky to invest in fabs, its like going to moon with limited stock of resources.

In case of India, the semiconductor industry is neither a manufacturer nor a strong IP holder. They offer design services to develop IP but finally owned by their customers.

Provided with its ample resources in semiconductor domain, India should focus more in creating IPs related to advanced semiconductor manufacturing, materials, standards, and chip design IPs.