The market for semiconductor intellectual property is set to increase by 25% this year, to $1.8 billion in worldwide revenue according to a new study.

And the next five years will see big changes in the IP business, as the chips at the heart of consumer-electronic devices become more complex and integrate more functions.

"The semiconductor IP industry has matured considerably during the past five years," said Christian Heidarson, senior research analyst at industry research firm Gartner, which released the report Monday.

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

Chipmakers leverage the intellectual property related to their semiconductor design and manufacturing processes to different degrees. Los Altos, Calif.-based


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derives nearly all its revenue from licensing its memory interface technology to other companies, while companies such as

Texas Instruments

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supplement their chip sales with licensing deals.

Gartner said it defines semiconductor IP as predesigned blocks of circuits for use in making complete semiconductor devices and that its definition only includes IP sold on the open market. Gartner does not include captive IP, which it describes as IP designed and used by one organization only.

Companies that license IP will play an important role in the next several years, as the semiconductor industry increasingly relies on the re-use of IP to build chips that offer more features and functions, say Gartner.

"For design teams to keep pace with Moore's law, the IP in these complex designs has to get even more complex," says Heidarson. "Also, new types of IP are required to meet the demands of more complex devices, for instance, IP blocks to support network-on-chip architectures."

Moore's law posits that the average number of transistors on a chip doubles every 18 months.

Going forward, Gartner said it expects fabless semiconductor companies -- companies that design chips, but don't own any manufacturing facilities -- to supply more of the industry's IP.

These companies have a great deal of valuable technology to license, says Gartner, and they have a significant advantage because their regular chip business can carry them through periods when licensing sales are slow.

Meanwhile, even companies that sell highly differentiated IP will become significant customers of smaller IP blocks, says Gartner. And Gartner predicts that at least two semiconductor vendors will be among the top 10 IP vendors in 2010.

Worldwide semiconductor IP revenue in 2010 will surpass $2.7 billion, according to Gartner.