Semiconductor IP Licensing Gains Royalties From Hyperscaler Custom Silicon
Summary
Cadence says its design IP business now earns royalties and Rambus won pre-standard HBM IP deals as hyperscalers buy custom chip IP directly and early.
Hyperscaler custom silicon is changing how chip IP gets paid for. On their third-quarter earnings calls on October 26, 2026, Cadence Design Systems (CDNS) and Rambus (RMBS) both said that large cloud companies designing their own chips now buy customised memory and interconnect IP from them directly and early, and Cadence said for the first time that its design IP business now earns royalties tied to shipments [1][2].
Why hyperscaler chip design changes IP pricing
Chip designers rarely build every circuit from scratch. Standard blocks such as memory interfaces and high-speed interconnects are usually licensed from specialist vendors, and the industry calls these blocks semiconductor IP. IP vendors have mostly sold to chip companies, earning a one-time licence fee plus a non-recurring engineering (NRE) fee for adapting the design to the customer. Hyperscalers such as Google, Amazon, Microsoft and Meta now design their own data-center chips and define their own memory and interconnect architecture, so they go to IP vendors directly for customised designs, often before industry standards are final. The more customised the IP, the more room a vendor has to move to licence plus royalty: after the chip reaches production, the vendor collects a fee on every unit shipped, so IP revenue starts to track custom-chip volume.
Cadence and Rambus both name hyperscalers as direct IP customers
Cadence CEO Anirudh Devgan said the IP business delivered another outstanding quarter, driven by deepening engagements with leading hyperscalers and semiconductor customers [1]. He noted that a year or two ago it was unclear whether hyperscalers would keep designing chips, and that Google, Meta, Microsoft, Amazon and Tesla are now all doing more and more designs [1]. Asked about business models, he said Cadence's Tensilica processor IP has carried royalties for a while and that its design IP business now has royalties as well [1]. Cadence's second-quarter call in July did not mention this [3].
Rambus supports the direct-engagement side from a different angle. CEO Luc Seraphin said the company is engaging earlier in the architectural planning cycle, with both its customers and its customers' customers, and won new tier one design wins for next-generation high-bandwidth memory (HBM, the fast memory stacked next to AI chips) ahead of standards being finalised [2]. In July it had already disclosed a similar win with a Tier 1 US hyperscaler [4]. CFO Sumeet Gagneja said the roughly $130 million silicon IP business, framed as growing 10% to 15% a year, is heading toward the high end of that range this year [2]. Asked whether Rambus would sign a hyperscaler development arrangement like its competitors, however, Seraphin said it would take time, and the company announced no new royalty deal [2].
Together the two calls support the claim that hyperscalers now buy custom IP directly and early. Only Cadence says royalties have appeared, and it gave no amount.
IP revenue starts to follow hyperscaler chip volumes
The party IP vendors negotiate with is moving from the chip company to the cloud company that actually uses the chip, and part of the fee is moving from a one-time project charge to a per-unit charge. Synopsys said on its August call that it is in advanced discussions with a number of these customers to change the model from licence plus NRE to licence plus royalty, an approach it calls Factory 2 [5]. IP vendors that can customise before standards are final capture more value per chip, while vendors that sell only standard catalog IP capture less.
This view has clear limits. Royalties show up only when 2026-27 designs reach production, roughly 2028 or later. Futurum reported that Synopsys signed a licence, customisation and royalty deal with Amazon worth more than $1 billion, with no royalty revenue in fiscal 2027 [6]. Broadcom and Marvell build custom chips for hyperscalers on their own in-house IP, so this pricing shift does not run through them [7][8]. The things to track are whether IP vendors start reporting design IP royalties separately and growing them, and whether Rambus signs development and royalty agreements with hyperscalers.
Companies exposed to the shift
- Synopsys (SNPS): The other large chip-design software and IP vendor. Its design IP business generated $474 million in a quarter, up about 11% year over year, and its Factory 2 custom IP pricing follows the same shift described above; when royalties reach reported revenue remains to be confirmed [5][6].
- Arm (ARM): Licenses processor architecture and collects a royalty on every chip. Hyperscaler-designed Arm server chips more than doubled its data-center royalties year over year, within $715 million of quarterly royalty revenue, up 22%, which shows what this pricing model looks like once it works on custom silicon [9].
- Arteris (AIP): Sells on-chip interconnect IP and already earns much of its revenue from royalties: $8.6 million over the trailing twelve months, up 65%. It also won a large deal with a US design house that builds custom chips for hyperscalers; whether that turns into royalties once those chips ship remains to be confirmed [10].
Sources
[1] Drillr · Cadence Design Systems · 2026-10-26 · Earnings call
"Now, in terms of your specific question on royalty, we are always looking at different kind of business models. So in IP, we always had royalty for a while in Tensilica, and now we have royalty in our design IP business as well."
[2] Drillr · Rambus · 2026-10-26 · Earnings call
[3] Drillr · Cadence Design Systems · 2026-07-27 · Earnings call
[4] Drillr · Rambus · 2026-07-27 · Earnings call
[5] Drillr · Synopsys · 2026-08-26 · Earnings call
[6] Futurum Group · Synopsys Investor Day 2026 Turns EDA Into a Royalty and AI Model Revenue Share Business · 2026-10-02 · Industry analysis · https://futurumgroup.com/insights/synopsys-investor-day-2026-turns-eda-into-a-royalty-and-ai-model-revenue-share-business/
[7] Drillr · Broadcom · 2026-09-02 · Earnings call
[8] Drillr · Marvell Technology · 2026-08-27 · Earnings call
[9] Drillr · Arm · 2026-07-29 · Earnings call
[10] Drillr · Arteris · 2026-08-06 · Earnings call
This article only helps surface industry changes and companies that may be overlooked. It is not a stock recommendation.