Imagination Tech, the maker of iPhones, iPads and Apple Watches was dropped by Apple, as the Cupertino giant no longer will be using Imagination Tech’s graphics technology in its new products – which is planned for 15 months to 2 years time.
Apple is Imagination Tech’s biggest customer, accounting for about half of their revenue stream. Since the first iPod, Imagination Tech has been supplying the GPUs in Apple’s phones, tablets, iPods, TVs and watches. According to a release from Imagination Tech, Apple “has been working on a separate, independent graphics design in order to control its products and will be reducing its future reliance on Imagination’s technology.”
However, Imagination is sceptical that Apple would be able to pull this off without running into some legal issues. “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.”
According to a Reuters report, analysts at Morgan Stanley said it was not the first time Apple had cut off a supplier – Portal Player, Sigmatel, CSR and Wolfson were all abruptedly dropped.
“There is a difference here though”, they said. “Imagination holds significant patents around graphics cores, in particular those which allow lower power use, and is considering discussing different commercial arrangements with Apple.”
Within the smartphone market, Imagination Tech is facing competition from chipmaker Qualcomm and British rival ARM, both producing for many major smartphone brands, with Qualcomm’s name widely known across many Android devices. Despite claims of owning over 50 percent of the high-end smartphone market, most of it stemmed from Apple. With only about 7 percent of the market for mid-tier devices, including phones made by Chinese manufacturers – Imagination is a bit hardpressed to gain a more stable footing.
While Imagination notes that they will be discussing “potential alternative commercial arrangements for the current license and royalty agreement” with Apple, MediaTek recently selected Imagination’s graphics for its new chipset.
Imagination wrote “Apple license fees and royalties, represented revenue of £60.7 million for the year ended 30 April 2016 and are expected to be approximately £65 million for the year ending 30 April 2017.” Most of its costs are incurred in developing technologies years ahead of when they are deployed in products, and it said there were minimal direct costs associated with Apple’s revenue.
Around half of its non-Apple revenue comes from the MIPS processing platform it bought in 2012 in an attempt to extend its product line-up beyond graphics. Customers for the MIPS technology include Israeli automated vehicle driving systems specialist Mobileye (recently acquired by Intel) and Chinese chipmaker Spreadtrum Communications, according to analysts.
