How do you value intangible assets in a technology hardware company?

Full Explanation

Technology hardware companies (semiconductor, consumer electronics, networking equipment, industrial IoT) have significant intangible assets despite their physical products. The most important intangible assets include: patent portfolios (valued via RFR using technology royalty rates, which in semiconductors typically range from 1-5% depending on the patent's essentiality to industry standards), semiconductor design IP (processor architectures, ASIC designs, FPGA configurations — valued via RFR or income approach), firmware and embedded software (the software layer running on hardware products, valued via RFR or cost approach), customer design-in relationships (in the semiconductor and component industries, getting designed into a customer's product creates multi-year revenue streams — valued via MPEEM using design-win pipeline data and typical product life cycles), and trade secrets including manufacturing process know-how (yield improvement techniques, testing methodologies). Standard-essential patents (SEPs) require special consideration because they must be licensed on fair, reasonable, and non-discriminatory (FRAND) terms, which constrains the royalty rate that can be applied. Customer relationships in hardware vary significantly — commodity component suppliers face high customer switching, while custom silicon or specialised equipment manufacturers enjoy sticky relationships. Technology useful lives in hardware are typically shorter (3-7 years) than in software due to rapid product cycles and Moore's Law-driven obsolescence.

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