Mergers create two tiers of IP providers

Gartner Dataquest analyst Jim Tully said mergers between vendors such as Parthus Technologies and DSP Group's Ceva division are sharpening the divide between the top players and the rest of the market. Though such deals would not automatically lead to further short-term industry consolidation, Tully said they could amplify other factors driving consolidation.

"There are a large number of IP companies in the market — say, 150," he said. "Most of them are very small businesses and some specialize in real niche application areas." Most work with big companies as virtual members of design teams. If they "address niche, not commodity, markets, small vendors can plod on," Tully said.

Still, uncertainty is rampant in the sector. "If the small companies go out of busine ss, the big ones could be in trouble," he said. "That's one of the forces suggesting there would be more consolidation." Tully said he does not expect to see wholesale consolidation until 2006 or '07.

Given that Parthus is scaling down development of its in-house DSP core, Tully said he expected it to eventually stop selling the Ceva core separately or embedding it in its platform.

The market for microprocessor and DSP cores is "getting a bit crowded," he added. "Quite a lot [of chip makers] have developed DSP cores and would prefer not to carry on supporting them internally."