Demand for semiconductor intellectual property is rocketing, according to a report from Gartner.

The analyst firm estimates that worldwide semiconductor intellectual property revenues will total $1.8bn in 2006, a 24.9 per cent increase from 2005 revenues of $1.4bn. The figure is forecast to surpass $2.7bn by 2010.

Gartner defines semiconductor intellectual property as predesigned blocks of circuits for use in making complete semiconductor devices.

Its definition only includes revenue from intellectual property sold on the open market. Captive intellectual property, which is designed and used by one organisation alone, is excluded.

"The semiconductor intellectual property industry has matured considerably during the past five years," said Christian Heidarson, senior research analyst for Gartner's semiconductor group.

"However, the next five years will bring major challenges to business models as demand for intellectual property shifts from standard functions to more complex specifications."

Intellectual property reuse will become even more important to chip design in the future. Heidarson added that, by boosting the productivity of design teams, intellectual property reuse fuels one of the main trends in the chip industry: device integration.

Moore's Law will still apply in 2010, so intellectual property reuse will be crucial if chip makers are to achieve the large gate-count chips required by future electronic products.

"For design teams to keep pace with Moore's Law, the intellectual property in these complex designs has to get even more complex," said Heidarson.

"Also, new types of intellectual property are required to meet the demands of the most complex devices, for instance, intellectual property blocks to support network-on-chip architectures."

Complex intellectual property products have the potential to generate large revenue streams. However, they require customisation, which means they will face the same problems as design services, such as being hard to scale.

"Vendors of highly differentiated intellectual property will need to adapt their business model to pursue large deals with fewer customers," said Heidarson.

"However, this will be a risky strategy for small vendors which may not survive if there are delays in market developments or a key customer fails outright.

"The implication for the semiconductor IP industry is that it will become more segmented. There will be firms that focus on smaller intellectual property blocks.

"We expect vendors of highly differentiated intellectual property to become significant customers of smaller intellectual property blocks, and that many of these firms will be semiconductor vendors.

"We advise players in the intellectual property industry to prepare for a market landscape where, by 2010, at least two semiconductor vendors are found among the top 10 intellectual property vendors."