Commentary:

Commentary: Electronics IP Industry - A November 2004 Update

by Dr. Russ Henke and Dr. Jack Horgan
Henke Associates

In their September 2003, December 2003 and February 2004, May 2004 and August 2004 Electronics IP Industry Commentaries, the authors examined the recent financial history and future outlook of the remarkable phenomenon of Electronics Intellectual Property (IP) providers, a niche that has emerged in its own right to claim a substantial amount of revenue in the world of Electronics Design Automation. We had arbitrarily selected eight (8) publicly-traded companies (hereinafter known as the "Group-of-8" or "G8"), as representative of the current financial state of the Electronics IP industry. In this November 2004 Commentary we look at the financial performances of these same vendors during the third quarter of 2004.

Group-of-8 (G8):

For the G8 companies above, we will assume that all of their revenues are Electronics IP sales and directly related IP services.



IP News Highlights

On August 23, 2004 ARM Holdings plc and Artisan Components, Inc. announced that they had entered into a definitive agreement under which ARM will acquire Artisan. On the same day Mentor Graphics announced it had acquired Palmchip Corporation's complete Parallel and Serial ATA Intellectual Property (IP) business. On October 11, Synopsys, Inc. announced that it has executed an agreement to acquire Integrated Systems Engineering AG (ISE), a leader in Technology CAD (TCAD) software products and services. And on October 18, Synopsys announced the acquisition of Cascade Semiconductor Solutions, Inc., d.b.a "Cascade IP," a provider of PCI Express digital IP solutions.



How did the Electronics IP G8 perform in the third quarter of 2004?

On the revenue front, Table 1 below reveals that the G8's combined Q3 2004 performance was up 7.4% sequentially and an impressive 34.4% year-over-year. The percentage winners year-over-year were LogicVision (82%) and Virage Logic (55%), both over 50% growth. Strong performances were also put in by MIPS, ARM, Rambus and Artisan. The major decliner was MoSys still reeling after the terminated merger with Synopsys. On a sequential basis, five of the firms had high single digit or low double digit growth. Artisan headed the list with 14% growth. MoSys had the biggest revenue drop (50%). Ceva and MIPS had only modest revenue growth.

Table 1 Quarterly Revenue of the Group-of-8 (G8) IP Providers ($ thousands)

Figure 1 below provides a bar graph of each vendor's revenue for Q3 2003, Q2 2004, and Q3 2004 in sequence.

Figure 1 Quarterly Revenues of the Group-of-8 (G8) IP Providers ($ millions)

The largest relative market share in Q3 2004 went to ARM at 40%, with Rambus in second place at 22%. ARM's market share will jump next year when the acquisition of Artisan (currently in third place at 14%) is completed.

Figure 2 IP Vendor Relative Market Share (3Q 2004)

As shown in Table 2 below, in Q3 2004 the combined earnings of the G8 rose $13 million sequentially and almost $37 million over the period a year earlier. All of the firms did better when compared to last year. ARM improved the most in absolute terms (+$9.6 million) with MIPS a close second (+$8.8 million). LogicVision was the only IP provider to lose money in the quarter. All the firms improved earnings relative to the prior quarter except Artisan, which dropped $1.7 million due to acquisition related expenses. MoSys had the largest jump in sequential earnings ($9.1 million) but $10 million of this amount was a termination fee related to the abortive merger with Synopsys.

Table 2 Quarterly Earnings of the Group-of-8 (G8) IP Providers ($000)

Q3 2004 Results of Individual Electronics IP Providers

On October 9, ARM Holdings plc announced its results for the third quarter. Total revenue was $39.4 million, up from $36.9 million in Q2 2004 and £31.7 million in Q3 2003. License revenue of £14.6 million was up 11.5% year-over-year and 14.6% sequentially. Twelve licenses for microprocessor cores were signed in the quarter. Royalty revenue of £16 million with record unit shipments of 341 million units was up 45.5% year-over-year and 14% sequentially. In terms of US dollars, total revenue was $71.7 million, up 40% from $51 million a year ago and up 7% from the previous quarter.

Net income for the quarter was £9.5 million (US$17.3 million) compared to £4.8 million (US$7.7 million) last year and £8.7 million (US$15.8 million) last quarter.

"We are encouraged by the 7% quarter-on-quarter increase in total dollar revenues in the seasonally weaker third quarter. The robustness of ARM's business and broad reach of our technology, underpinned by strong ARM11 family licensing activity and continued royalty momentum, provide a solid platform on which to build with the proposed combination of ARM and Artisan."

In August 2004, ARM announced the acquisition of Axys, a provider of fast, accurate, integrated, processor and system modeling and simulation solutions.

On August 23, 2004, ARM and Artisan announced the signing of a definitive agreement under which ARM will acquire Artisan. On September 30, 2004, the US Federal Trade Commission (FTC) and Department of Justice (DoJ) granted early termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act. ARM and Artisan shareholder meetings to vote on the transaction are likely to occur in late December 2004 or early January 2005. Artisan revenue the past few quarters has been above $20 million per quarter.

On November 1, 2004 Artisan Components, Inc reported results for its fourth quarter and the fiscal year 2000 which ended on September 30. Total revenue for the quarter was $25.1 million, an increase of 29% year-over year from $19.5 million and a sequential increase of 14% from $2 million. This is the 13th sequential record revenue quarter. License revenue of $15.6 million (63% of total revenue) represented a decrease of 5% year-over-year and increase of 10.5% sequentially. Royalty revenue of $9.5 million (37% of total revenue) grew 212% year-over-year and 21.5% sequentially. On a geographic basis, Taiwan comprised 45% of total revenue, North America 20%, China 18% and ROW 17%. There are 600 companies licensing 9,000 Artisan products, more than half from 130 nm and 90 nm. In the quarter, there were 20 royalty producing partners, 2 of whom were new in the quarter.

Net earnings per GAAP were $4.5 million, down 27% from $6.2 million the prior quarter and up 78% from the same quarter a year ago. Pro forma net income was $6 million compared to $2.7 million a year ago. In the quarter, Artisan had $1.8 million in costs related to the proposed merger with ARM Holdings plc.

For fiscal 2004, total revenue was $88.5 million compared to $68.5 million fiscal 2003. License revenue of $57 million was flat, but royalty revenue of $31 million was up nearly 200%. Net income for fiscal 2004, on a GAAP basis, was $19.2 million, an increase of 162%, compared with net income of $7.3 for fiscal 2003. Pro forma net income for fiscal 2004 was $17.4 million, an increase of 112%, compared to $8.2 million for fiscal 2003.

"Artisan is playing a critical role in connecting high-volume design teams with leading manufacturers," said Mark Templeton, president and chief executive officer of Artisan Components. "Our growth reflects the success of this vibrant and growing community."

On October 26, 2004 CEVA Inc reported its results for the third quarter. Total revenue for the quarter was $9.7 million, a slight increase from the $9.6 million reported in the second quarter 2004 and a 4% increase compared to $9.3 million in the third quarter 2003. The company had predicted modest revenue growth and profitability in the quarter. Third quarter licensing revenue of $6.9 million was similar to the 2004 second quarter and increased 7% from $6.5 million in the third quarter 2003. There were 6 new licensing agreements in the quarter. Third quarter 2004 royalty revenue was $1.6 million, up 24% from $1.3 million reported in the second quarter 2004 and a 33% rise from the $1.2 million in the third quarter 2003.

Shipped units by licensees increased 30% to 30.5 million in the third quarter 2004 compared to 23 million shipped in the second quarter 2004 and a 110% increase from 14.5 million units shipped in the third quarter 2003. Royalty revenue and units shipped were records in what is traditionally a down quarter. Ceva expects 100,000,000 units for the year. 8.8 million of the units shipped by licensees in the quarter were from those currently paying per unit royalties. The other shipments were under prepaid royalties. There were a total of 26 licensees of which 17 are currently paying per unit royalties.

Third quarter net income increased 13% to $560 thousand compared with second quarter 2004 net income of $494 thousand. The company recorded a net loss of $1.1 million in the third quarter 2003. This is the 8th consecutive quarter of license revenue growth and the third straight quarter of profitability.

During the third quarter, CEVA completed six new licensing agreements including another licensee for CEVA-X and good adoption of CEVA's Serial-ATA solutions. In addition, a major Japanese wireless player was the first to license CEVA's Mobile Media solution following the launch of the technology in the quarter. Also during the quarter the firm made announcements that Atmel adopted CEVA for storage solutions, Zoran for DVD systems, Japan Radio Consortium for radio solutions, and Nemerix for location solutions.

"CEVA's strong end-market growth drivers - wireless and consumer multimedia - resulted in a record 30 million units shipped in the third quarter with CEVA technology embedded as our licensees continue to thrive in the DSP industry," said Chet Silvestri, President and CEO of CEVA. "Although it is traditionally our weakest quarter, CEVA's revenue, gross margin and net income all recorded sequential improvements. Furthermore, our strong cash position gives us the flexibility to pursue internal and external growth initiatives to further extend our position as the leading licensor of DSP technology."

On October 26th LogicVision reported its results for the third quarter. Total revenue for the quarter was $2.7 million, up 81% compared to $1.48 million in the same period last year and up 9.8% compared to $2.45 million in the prior quarter. This is consistent with its revenue forecast (i.e. in excess of $2.5 million. License revenue (62% of total revenue) was up 257% year-over-year and up 28% sequentially. Service revenue (36% of total revenue) was up 1.3% year-over-year but down 11% sequentially. Gross margins for the third quarter were 69 percent, compared with 64 percent for the second quarter. Higher licensing revenues, which earn the company's highest margins, contributed to the increase in gross margins. North America accounted for 77% of revenue with Japan making up most of the rest.

Net loss for the third quarter was $1.8 million, an improvement over net losses of $3.3 million and $2.1 million for last year and last quarter respectively.

"We were very pleased to have exceeded our third quarter guidance. Revenues were the second highest in the last eight quarters and our backlog going into the fourth quarter is strong at $18.2 million," said Jim Healy, president and CEO of LogicVision.

On October 14, LogicVision announced that it has entered into a definitive agreement to acquire SiVerion, Inc., a privately held Arizona-based provider of parametric yield analysis solutions. LogicVision has agreed to acquire SiVerion by issuing two million shares of its common stock and $2 million in cash at closing, plus a contingent future payment of up to $2 million if the per share price of LogicVision common stock is less than $3.00 on the two-year anniversary of the closing date. SiVerion will become a business unit of LogicVision.

"As previously discussed, we signed a definitive agreement to acquire SiVerion, Inc., which we believe will significantly broaden our yield-learning solution and accelerate time-to-yield for advanced designs and processes. We expect to close this acquisition by early November."

On October 20, 2004 MIPS Technologies, Inc reported results for the first quarter of its fiscal 2005 which ended September 30. Total revenue for the quarter was $14.6 million, up 40 percent compared to $10.4 million from the same period a year ago, primarily as the result of significant licensing activity in MIPS32 24K cores. The company had predicted that revenue would be flat or down 5% relative to last quarter's revenue of $14.2 million. There were 9 new license agreements in the quarter. On a sequential basis revenue grew a more modest 3%. Contract revenue was $7.9 million, an increase of 48 percent compared to $5.3 million in the comparable period in fiscal 2004. Royalties were $6.7 million, an increase of 32 percent compared to $5.1 million in the same quarter a year ago. Again on a sequential basis these categories grew only a few percentage points.

Net income for the first quarter of fiscal 2005 was $3.1 million compared to a net loss of $5.8 million for the same quarter a year ago and a gain of $2.6 million the prior quarter.

"Although the overall environment has slowed in the second half of 2004, we are seeing strong demand and revenue growth," said Casey Eichler, chief financial officer of MIPS Technologies. "The demand for all product families is strong, but the 24K core family is driving the top line as the 'right product at the right time' as it is very competitive in many markets.

John Bourgoin, president and CEO of MIPS Technologies, added "With eleven licenses completed in only six months following introduction, the 24K core family is by far the fastest growing MIPS' product in our history. This sets the stage for continued proliferation of the MIPS architecture into consumer and communications markets."

On October 28, 2004 Monolithic System Technology, Inc. (MoSys), reported financial results for the third quarter. Total net revenue in the quarter was $1.7 million, as compared to $3.4 million in the second quarter of 2004 and $3.5 million in the third quarter 2003, drops of about 50%. License revenue in the quarter totaled $128 thousand, down 89% from $1.3 million in the previous quarter and down 85% from the $1.8 million in the third quarter of 2003. There were two new revenue projects in the quarter. The company reported $1.5 million of royalty revenue in the quarter, a slight increase over the previous quarter's $1.4 million and the $1.2 million reported for the third quarter of 2003 and the 1.4 million the prior quarter. Royalties were received from 10 different licensees most with multiple SoCs in production. Product revenue fell from $691K to $76K as the company exits from the discreet component business. NEC, Marvel and Sony accounted for 33%, 14% and 12% of total revenue respectively.

Net income for the quarter was $5.1 million. Net income includes $10.0 million of other income in the form of cash received from Synopsys as a result of the termination of the merger agreement. Without this income, the net loss would have been $4.7 million. The results for the quarter compare to net loss of $249 thousand in the same period last year and a net loss of $4 million in prior quarter. The company spent $4.7 million in stock repurchase. The Board has authorized stock repurchasing of up to $25 million. The company has 85 employees of which 63 are engineers.

In August MoSys announced the appointment of three new independent members to its Board of Directors: Tommy Eng, founder of Tera Systems and a former Division GM at Mentor Graphics; Chi-Ping Hsu, Vice President at Cadence in charge of the company's synthesis product line; and Jim Kupec, President of the JDK Group, a semiconductor consultancy firm. In September the firm announced it had hired Karen Lamar as Vice President of Sales and Marketing.

"Licensing revenue has been adversely affected by disruptions triggered by the aborted Synopsys acquisition as well as some challenging market conditions," commented Dr. Fu-Chieh Hsu, President and CEO of MoSys. "Over the past two quarters we have refocused the company on strengthening our independent presence in the market in order to capitalize on what we believe to be the growing need for high-density embedded memory."

Surprisingly, there were no questions during the analyst quarterly call.

On October 14, 2004 Rambus Inc reported its results for the third quarter. Total revenue for the quarter was $38.8 million, up 36% over the third quarter last year and up 11% from the previous quarter. This was record revenue for the second straight quarter. The company in mid-July predicted sales of between $36 million and $39 million. Contract revenues of $8.3 million were up 107% over the third quarter last year and up 55% from the previous quarter. This increase in contract revenues primarily reflects revenues from contracts signed in 2003 for XDR memory interface and Redwood interface technologies and a serial link contract. Third quarter results include $30.5 million in royalties, up 24% over the third quarter last year and up 3% from the previous quarter.

Net income for the quarter was $10.4 million, a sequential increase of $2.1 million or 24% and a year-over-year increase of $5.4 million or 107%. Approximately $2.7 million of the net income for the third quarter was attributable to foreign tax credit utilization. Costs and expense for the quarter were 15% higher than the previous quarter. This was primarily attributable to a $1.9 million increase (+40%) in litigation expense (preparation for Infinion trial and discovery related to Hynix case) and a $1.3 million increase in marketing, general and administrative expenses.

On July 17, Rambus and Cadence announced multi-faceted agreements to offer comprehensive solutions for the serial link interface market. Under agreements between the companies, Rambus is acquiring serial link IP from Cadence to incorporate into its existing RaSer product line of serial link cells. Rambus paid $11 million this quarter for patents and cells. Cadence Engineering Services will gain access to Rambus's portfolio of serial link cells to deliver customized design solutions as needed. Cadence will be the exclusive EDA industry reseller of Rambus's foundry serial link cells, and will exclusively sell only Rambus foundry serial link cells off-the-shelf (OTS). Rambus is training Cadence sales force.

During the quarterly Rambus conference call, the company announced plan to open a design center in Bangalore, India in order to have a presence closer to their Asian customers. Several company employees of Indian descent will move back to India.

On August 19, Rambus announced that Sharon Holt had joined the company as senior vice president of worldwide sales and marketing. Ms. Holt was most recently the vice president and general manager of Americas Field Operations at Agilent Technologies, Semiconductor Products Group.

"Our revenue growth of 36% demonstrates the excellent progress our team is making on multiple fronts," said Geoff Tate, chief executive officer at Rambus. "Our contract revenue doubled over a year ago primarily as a result of our best ever quarter in our serial link business as well as significant development work in our XDR and Redwood customer programs." In this quarter the firm recognized the first production royalty on its serial link technology. During the conference call the company said that contract revenue may be peak although they did not expect a significant drop-off next quarter.

Rambus' patent infringement case involving Infineon is scheduled for trial on November 10, pushed back from an expected October 5 start. Hearings are currently taking place in its appeal case with the U.S. Federal Trade Commission.

Rambus received a news boost in mid-September when Infineon settled an unrelated price fixing case with the U.S. government for $160 million, the third largest such fine ever.

On October 28, 2004 Virage Logic Corporation announced the results for its fourth quarter and the fiscal year 2004 ending September 30. Total revenue for the fourth quarter was $15.3 million, up 55% from $9.9 million for the fourth quarter of fiscal 2003, and up 11% from $13.9 million for the prior quarter. This is above the $15 million guidance provided in July. Total license revenue was $12.2 million, up 42% compared with $8.6 million for the same quarter a year ago and up 2% compared to $11.9 million for the prior quarter. Revenues were recorded under licensing agreements from 47 customers - 37 existing and 10 new. Royalties were $3.1 million, up 138% from $1.3 million for the fourth quarter of fiscal 2003, and 64% from $1.9 million the prior quarter.

Net income for the fourth quarter of fiscal 2004 was $1.5 million compared with a net loss for the fourth quarter of fiscal 2003 of $687,000. Net income for the third quarter of fiscal 2004 was $571,000.

Fiscal year 2004 revenues were $53.0 million, up 30% from $40.7 million for fiscal year 2003. GAAP net income for fiscal year 2004 was $1.9 million compared with a net loss for fiscal year 2003 of $3.9 million.

"We're very pleased with our fourth-quarter financial results, which include new quarterly records for total revenues, licensing revenues, royalties, and GAAP earnings per share," said Adam Kablanian, Virage Logic's president and chief executive officer. "As we move into fiscal 2005, we believe that our anticipated growth will continue to be driven by customers relying on our technically superior semiconductor IP platforms that help them successfully transition to the more advanced process nodes."



Stock Market Prices of the G8 Electronics IP Providers

The combined stock prices for the G8 were up 15.4% in absolute dollars from the same quarter last year but the average percentage change was 7%. As a group the G8 outperformed the three major stock indices in absolute dollars but trailed the DOW and S&P in average delta. Artisan had the largest rise due mostly to the impending acquisition by ARM. Virage Logic (+62%) and MIPS (+39%) also had strong performances. MoSYS had the largest fall (-49%) due to the termination of its merger with Synopsis. LogicVision also plunged (-48%). There is no obvious explanation in terms of the company financials; however the CEO and VP sold a significant amount of shares in late July and early August.

On a sequential basis the G8 stocks dropped 2.7% in absolute dollars but the average percentage change was a drop of over 10%. The three major indices were dropping single digit percentage points. Virage Logic was up 35%. Again Artisan stock rose 13% on news of impending acquisition by ARM, whose stock fell 31%.

Table 3 Stock Information on the Group-of-8 (G8)

Table 4 Stock Market Major Indices

Figure 3 Stock Prices of the Group-of-8 (G8)

Forecast Guidance from Individual IP Providers The forecast figures are for the midpoint if a range is specified. ARM and Artisan did not provide specific guidance for the next quarter due to pending acquisition. LogicVision's projection is for revenue in excess of $2.4 million, so the 11% drop is a worse case scenario.

Table 5 Revenue Forecast of IP Providers

Individual Company-Company Guidance

ARM expects to achieve revenue growth of 20% next year as the UK chip designer's ARM11 continues to gain popularity with semiconductor makers, according to chief financial officer Tim Score. "The market numbers for 2005 are for growth, in sterling terms, of around 20% and we see no reason to change that at this stage," said Score on a conference call with analysts. Score later told analysts he expected royalty rates to rise over the next few quarters as more sophisticated cell phones with application processors reached the market. He also said the proposed acquisition of Artisan would contribute to cost savings and a rise in revenue in 2005.

For guidance Artisan Components, Inc declined to comment due to the pending merger with ARM. When completed Artisan would no longer be a separate company.

In general CEVA sees that revenue growth and profitability will continue. They do see a trend toward single user licenses away from multi-user licenses. This trend will not lead to lost revenue but a spread of revenue over time (pay as you go). CEVA expects revenues in the next quarter to be in the range of $9.7 million to $10.2 million and operating expenses in the range of $8.0 million to $8.2 million. For the full year the company expects revenues between $38 million and $39 million.

LogicVision expects revenues for Q4 to be in excess of $2.4 million. This compares to $2.7 million last quarter and $3.7 million for the fourth quarter last year. Net loss for Q4 is expected to be in the range of $2.5 million to $2.8 million versus a loss of $1.7 million last year. The company expects operating expenses to increase as it invests in the business to improve its product and increase customer adoption, as well as to absorb the business operations of its recently announced acquisition of SiVerion, Inc.

Revenue for the year would be $10 million versus $9 million in 2003. The net loss for 2004 is expected to be $8.8 million versus a net loss in 2003 of $12.0 million.

MIPS anticipates revenue growth of 5% over the just completed quarter or $15.3 million versus $14.6 million. MIPS had revenues of $10.7 million in corresponding quarter last year. Operating expenses are anticipated to be in the range of $11.3 million to $11.8 million versus $10.8 million in the quarter just reported.

Monolithic System Technology, Inc. (MoSys) gave no guidance.

For guidance Rambus forecasts revenue in the range $37 million to $40 million compared to $38.8 million in the just completed quarter. The company expects modest hiring in the quarter. Litigation expenses are difficult to predict. There will be oral arguments in the appeal case by FTC in December. The Infinion retrial is currently set for next February 2005, the Hynix trial for next January 2006 and the Mirco trial for February 2006.

Virage Logic currently anticipates total revenues in the range of approximately $15.9 million to $16.2 million. Expected total revenues for the quarter are anticipated to include royalties of approximately $3.1 million. This compares with revenues of $10.9 million the prior year and $15.3 in the quarter just completed. The company expects to report GAAP net income of approximately $0.08 per diluted share. The firm had a net loss of $0.02 last year.

Comments on the IP business of Cadence, Mentor Graphics and Synopsys
The overall Top 3 EDA Vendors are also important players in the IP providers' niche. For example, in previous IP articles we mentioned that Dataquest recognized Synopsys' IP and IP-related revenues for 2002 (~$73 million) to be deemed sufficient for Dataquest to characterize Synopsys then as the Number 3 IP player worldwide. Mentor Graphics' recent annual IP revenues from its Inventra Division are estimated to be in the $30 to $35 million class. Cadence, which does not explicitly appear in Dataquest's list of the top ten IP providers at all, nevertheless chooses to define a revenue reporting category called, "IP Creation", in which Cadence reports as much as $293 million of IP-related business in 2001, $260 million in 2002, and $109 million in the 1H 2003. If this Cadence "IP Creation" revenue were aggregated the exact same way the revenues of, say, ARM Holdings, plc were aggregated, then Cadence would rank right up there neck and neck with ARM. The difficulty in comparing the Top 3 EDA Vendors' IP business to one another is caused by the differences in how each company arbitrarily chooses to define the revenue components of its respective IP business. Further, none of the TOP 3 EDA Vendors unbundles profitability of its respective IP-related business lines, precluding IP earnings' comparisons.

On October 4, 2004 the EDA Consortium's Market Statistics Service (MSS) announced that the electronic design automation (EDA) industry revenue for Q2 of 2004 was $993 million, a 4% increase over Q2 2003 and essentially flat relative to Q1 2004. The EDA Consortium is the international association of companies that provide tools and services that enable engineers to create the world's electronic products.

"Despite very modest growth in the EDA industry, there are no indications of overall strength," said Walden C. Rhines, chairman of the EDA Consortium and chairman and CEO of Mentor Graphics Corporation. "Growth in services versus last year is positive but the sequential decline is not. Good growth in some areas, like analysis tools, RTL simulation, system level design/verification, floorplanning and resolution enhancement, was offset by weakness in physical design/verification and logic synthesis. Similarly, growth in Pac Rim was offset by weakness or slow growth in other regions."

The geographic distribution was

Most if the growth is coming from the Far East, particularly China.

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About the Authors:

Since 1996, Dr. Russ Henke has been president of HENKE ASSOCIATES, a San Francisco Bay Area high-tech business & management consulting firm. During his corporate career, Henke operated sequentially on "both sides" of MCAD and EDA, as a user and as a vendor. He's a veteran corporate executive from Cincinnati Milacron, SDRC, Schlumberger Applicon, Gould Electronics, ATP, and Mentor Graphics. Henke is a Fellow of the Society of Manufacturing Engineers (SME) and served on the SME International Board of Directors. He is also a member of the IEEE and a Fellow of ASME International. An affiliate of the HENKE ASSOCIATES team since 2001, LA-based Dr. John R. (Jack) Horgan co-authored this article. Jack's career has included executive positions at Applicon, Aries Technology, CADAM and MICROCADAM, as well as a stint at IBM. Since May 2003 the authors have now published a total of twenty two (22) articles on MCAD, PLM, EDA and Electronics IP on IBSystems' MCADcafé and EDAcafé. Further information on HENKE ASSOCIATES, and URL's for past Commentaries, are available at http://www.henkeassociates.net.