Imagination Technologies, a former Apple supplier and partner, has now opened an official dispute after the Cupertino-based firm disclosed that it won’t be using its graphics chips. Instead, Apple will design its own chips. After failing to resolve a standoff over licensing, the U.K. chip designer said on Thursday that it had begun a “dispute resolution procedure” with the U.S. firm.
Imagination needs business from Apple
In April, the Hertfordshire-based chip designer said that the iPhone maker had notified it that it was making its own graphics chips. Apple also said it will not be using the British firm’s processing designs in 15 months’ to two years’ time. The loss of Apple as a customer pushed the U.K.-based chip designer’s shares down by 70% last month. Imagination’s stock has barely recovered since then.
Apple accounts for about half of Imagination’s revenue, and its decision to ditch the company’s chips has sent shudders through almost all its current suppliers. The iPhone maker also owns an 8.12% stake in the British firm, according to Business Insider.
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In reference to Apple‘s importance to Imagination, Jefferies equity analyst Ken Rumph said at the time of the breakup, “In the worst case, survival, let alone value, is in question.”
A spokeswoman for the chip maker told Business Insider that the dispute resolution procedure essentially means that the two companies will aim to reach a new agreement within the terms of the current contract. It was not a legal process, she told the news outlet. Imagination said it had not been able to make satisfactory progress with Apple yet regarding alternative commercial agreements, and it hopes to reach an agreement through a more structured process.
The partnership between Apple and Imagination goes back nearly 10 years. The U.S. firm has been using Imagination’s technology in its products since the iPod. The tech giant uses Imagination’s graphics processing unit chip designs under a licensing agreement worth tens of millions of pounds every year. The British company receives royalties on sales of every Apple device containing its designs.
Selling two core business units
The British firm also announced on Thursday that it wants to sell two of its three core business units to strengthen its balance sheet. In its trading update for the year ending April 30, the British firm announced that it “has commenced a dispute resolution procedure with Apple Inc. (“Apple”) and announces that it intends to sell its MIPS and Ensigma businesses.” It could be seen as a sign that the company will be massively disrupted by Apple’s departure.
Imagination said it has continued to invest in its MIPS and Ensigma businesses, but now, it has decided to market the businesses for sale and concentrate its resources on PowerVR, the graphics technology used in the iPhone and other gadgets, and strengthen its balance sheet. Imagination’s Ensigma connectivity and MIPS processor design divisions accounted for £21 million of its £73.5 million in revenue for the six months ending October 31, notes Telegraph.