Menu

Home / News & Resources / Blog / No Imagination for Apple

No Imagination for Apple

06 Apr 2017

On Monday 04 April 2017, shares in Imagination Technologies Limited (Imagination) slumped by a gut-wrenching 70% after it announced that Apple would be pulling the plug on their long standing graphics deal.

Imagination is a UK technology company which designs the Graphics Processing Unit (GPU) chip used in many Apple devices including the iPhone, iPad, iPod and Apple TV. Apple uses the GPU chip under a licensing agreement, paying fees and royalties to Imagination in return. Last year, Imagination received over £60m from Apple - a figure forecast to increase by £5m for the current financial year.

Apple is Imagination’s largest customer. Imagination has referred to the Apple contract as “essential”, accounting for 69% of Imagination’s GPU revenue. Furthermore, with an 8.2% stake, Apple is Imagination’s biggest shareholder and it’s unsurprising that Apple came close to acquiring Imagination a year ago.

Apple has served notice that it will stop using Imagination’s technology within 15 to 24 months. This will be a large reduction in the bulk of Imagination’s GPU revenue and is not good news for their 1,200 members of staff (a figure already recently reduced by around 350), over half of which are based in the UK.

Apple has said that it is “working on a separate, independent graphics design in order to control its products and will be reducing its future reliance on Imagination’s technology”. Expertise required to design GPU chips is scarce and interestingly dozens of former Imagination managers and engineers already work at Apple.

AppleInsider has estimated that over 25 Imagination employees have moved across to work at Apple over the past two years, including a previous Chief Operating Officer who is now a senior director at Apple.

For Apple to succeed, it would have to establish its own intellectual property rights within an already well-covered field without stepping on anyone’s toes.  Imagination, a company which has been around for decades and first floated on the stock market back in 1994, has questioned whether Apple will be able to develop its own computer chips without breaching intellectual property rights.

Imagination said on Monday that “Apple has not presented any evidence to substantiate its assertion that it will no longer require Imagination’s technology, without violating Imagination’s patents, intellectual property and confidential information. This evidence has been requested by Imagination but Apple has failed to provide it.”

When a customer like Apple decides to part ways it certainly leaves a rather large hole for any company to fill. To add salt to the wound, Apple is also known for throwing its weight around the legal field and can afford to spend much more than the average company when defending an intellectual property claim. This is the reality that GPU designers, like Imagination and its competitor ARM, now face.

Imagination’s best stance would be to use their close history with Apple to secure a cosy revenue stream by entering into an alternative commercial agreement ensuring Apple does not violate Imagination’s patents. This would bring the current relationship to an end but would establish a new one, with Apple paying royalties to Imagination to avoid legal battles.

In fact, there are already whispers that this is the likely route the companies will take and will best suit Imagination’s shareholders. This is, of course, all speculation at the moment but it seems like the ball is in Apple’s court. It will be interesting to watch how this will play out.

Comments

Currently no messages. You need to be registered and logged in to comment

Further reading

Request a call back