In a technology hardware company, how do you value intangible assets?

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 might illustratively 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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