Santa Clara, Calif. -- Looking to get a jump on rivals like TSMC and Virage Logic, ARM Holdings plc last week pulled back the curtain on its 32-nanometer initiative for physical-intellectual property (IP).

At the same time, ARM warned that the dreaded shift to 32 nm will be an expensive and risky proposition, estimating that R&D costs will edge toward $75 million for a 32-nm design, compared with $20 million to $50 million at 45 nm.

ARM is best known for its processor cores, but physical IP--memory cores, phase-locked loops, standard cells and other IC building blocks for system-on-chip design--is critical to the company's growth. During a keynote address at the ARM Developers' Conference here last week, ARM CEO Warren East dropped hints about the company's bold 32-nm initiative for leading-edge physical IP.

ARM entered the physical-IP space in 2004 by acquiring U.S.-based Artisan Components Inc. for $913 million. Artisan had focused largely on trailing-edge technology that could be downloaded free. "You can say we invested a little late [in new technology] when we were Artisan," Mike Muller, chief technology officer for ARM, said in an interview at the conference.

Though ARM continues to offer a free physical-IP program for customers, "in our new business model, we want to be on the leading edge" of physical-IP-technology development and delivery, Muller said. In 2006, ARM acquired Soisic, a developer of physical-IP based on silicon-on-insulator (SOI) technology. And ARM and Taiwanese foundry provider United Microelectronics Corp. (UMC) have jointly developed an SOI-based processor core at the 65-nm node.

ARM has delivered 45-nm physical IP to customers that are said to include UMC, Taiwan Semiconductor Manufacturing Co. Ltd. and IBM's "fab club," including technology alliance partners Chartered Semiconductor Manufacturing and Samsung.

Given current market dynamics, ARM may have little choice but to focus on the leading edge. The big customers for the U.K. company's physical IP are the silicon foundries. But one account--foundry giant TSMC--has developed its own physical IP.

Unlike third-party offerings, TSMC's IP is tailored exclusively for its own fabs. The foundry offers both its own and third-party IP to its customers. It has called its internal development program a hedge against the possibility that a third-party provider might fail to deliver a solution on time. But the proprietary IP could also help TSMC lock customers into working with its fabs. That has riled some third-party IP houses, which find themselves dealing with TSMC variously as a customer, development partner and competitor.

When asked about its complex relationship with TSMC, ARM's East was diplomatic. "We look at them as a partner rather than a competitor," he told EE Times.

Dangerous dive
An even bigger challenge for ARM--and the industry at large--is the costly, risky plunge into the 32-nm node.

Chips based on 32-nm processes are expected to hit the market starting in 2009. By then, a new 300-mm fab could go for $10 billion, and process development costs may reach $3 billion. R&D costs for 32-nm chip design alone are expected to reach a whopping $75 million, East said.

But chip design costs differ from company to company and are essentially "immaterial," he added. "Each company will have its own source of pain. The real point is that it is getting more expensive."

Soaring design costs are prompting more collaboration in the industry, East said. ARM intends to help chip makers by getting a jump on the physical-IP market at the 32-nm node. "That's one way to offset the risk," he said.

East nonetheless remains upbeat about the outlook for semiconductors. Pessimists, he acknowledged, claim the semiconductor business is "turning into the steel industry and we'd better turn off the lights and go home, [but] it really isn't turning out that way. The world of semiconductors is simply changing."