Apple to stop using UK chip designer’s IP in new products

Does Apple’s decision leave Imagination Technologies high and dry?

Hertfordshire-based Imagination Technologies is one of the leading designers of graphic processing units (GPUs) in the smartphone industry. Apple currently licence the Power VR GPU from Imagination for the processors of the current iPod and iPad models.

Apple recently dealt a body blow to Imagination when the smartphone behemoth served notice stating that they would be discontinuing the Imagination licencing arrangement in two years’ time. Apple currently holds an 8% stake in Imagination and previously made an approach to buy the company which subsequently fell through.

Unsurprisingly, stocks in Imagination plummeted following the announcement. Last year Imagination received £60.7 million in licence fees and royalties from Apple. With the total revenue for the same period being £120 million, losing Apple’s business is a significant blow to Imagination. It is not exactly clear what the main driver was for Apple decision, with many commentators seeing it as a strategic commercial decision teeing up a potential future deal or takeover.

Apple also announced they have been developing a GPU which they insist will not infringe Imagination’s intellectual property. Interestingly, they have also hired a number of key staff from Imagination in recent months which raises questions about how different Apple’s GPU will be from Imaginations, given that some of the same staff will be working on them.

Imagination historically was a pioneer of GPU technology but has recently faced competition from ARM Holdings and Qualcomm. Last year the company sacked long-term chief executive Sir Hossein Yassaie and made hundreds of redundancies as part of a substantial restructuring. This indicates a potentially difficult situation for Imagination, however, if Apple are incapable of producing a similar GPU without infringing Imagination’s intellectual property, then it may be in both parties’ interests to strike a new deal that helps out both Imagination and Apple.

Imagination has reportedly asked Apple to elaborate on how they intend to develop a new GPU without infringing their intellectual property, but Apple are yet to respond. A potential infringement action may be one form of recourse sought by Imagination, but given the cloak and dagger approach of Apple to date, a takeover or 11th-hour deal may yet be on the cards.