Shares in UK chip designer Imagination Technologies slumped nearly 70% after it said Apple, its largest customer, would stop using its graphics technology in the iPhone and other new products.
This is a major blow to the British company, which relies on Apple for half its revenues. It warned that the US tech giant risked infringing its intellectual property rights.
Apple has used Imagination’s chip technology under a licensing agreement for many years and is one of its biggest shareholders, with an 8.2% stake. It came close to buying the Hertfordshire-based firm a year ago.
Imagination’s technology has formed the basis of graphics processor units (GPU) in iPhones, iPads, iPods, TVs and watches. But Apple has been working on a separate, independent graphics design to control its products and has served notice it will stop using Imagination’s technology in 15 months to two years’ time, the chipmaker said.
Imagination has begun talks with Apple as it gears up for a battle over its intellectual property rights. It said the two firms were discussing potential alternative commercial arrangements for the current licence and royalty agreement.
The chipmaker said: “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.
“Imagination believes that it would be extremely challenging to design a brand new GPU architecture from basics without infringing its intellectual property rights, accordingly Imagination does not accept Apple’s assertions.”
Imagination received £60.7m in licence fees and royalties from Apple last year, which is expected to rise to £65m in the year to 30 April. The struggling chipmaker has been cutting staff and restructuring its business after a series of profit warnings.
Analysts at N+1 Singer cut their recommendation on the shares to a “sell”, saying: “If the group is unsuccessful in challenging Apple’s position, we would expect the group to need to make significant operational changes to align the cost base to the new revenue profile. Given the uncertainty around its largest revenue stream, and current net debt position, we move to sell.”
The shares plummeted nearly 70% to 85.5p in early trading.