Imagination Technologies (IMG) and its shareholders were struck by a cruel blow this morning. IMG's biggest customer signalled that it would not need its intellectual property (IP) any more. Apple told IMG that it would not be using its GPU IP in new products from 15 months to 2 years from now. Of course, in line with such an event Apple would cease royalty payments. In 2016 Apple paid out £60.7m in royalties to Imagination and it is forecast to pay about £65m for the current financial year, notes the BBC.
The news about the GPU IP contract was released this morning, an hour before the markets opened, and has hit IMG shares hard. According to LSE.co.uk, shares last closed at £2.68 each on Friday but were priced as low as £0.76 this morning. At the time of writing traders seem to think that was a knee jerk overreaction, as the price has edged back above a pound, at £1.04.
Apple developing its own GPU tech
In IMG's news release the company argues that Apple can't just cease paying royalties for its GPU IP without evidence to prove it won't be using the technology, in any way, any more. Apple has used IMG's GPUs in successive generations of iPhones, iPads, TVs and watches but says that it will begin to use "a separate, independent graphics design in order to control its products".
Following the shock news from its biggest customer, IMG has pushed Apple to show evidence that its in-house GPUs don't violate Imagination's patents, intellectual property and confidential information but Cupertino has declined to provide such verification. Looking at the news release, IMG isn't just accepting Apple's word. "Imagination does not accept Apple's assertions," says the statement, and reasons "it would be extremely challenging to design a brand new GPU architecture from basics without infringing its intellectual property rights".
Mobile graphics continue to improve
IMG is holding a conference call for analysts and investors this morning but we haven't seen any RNS updates about it as yet.
Apple holds 8 per cent of IMG shares and has previously held talks about buying it out. Today it would be a bargain, perhaps, especially with the $:£ exchange rate how it is.