Imagination Technologies shares freefall by 70pc after Apple cuts ties

3 Apr 2017

Apple logo. Image: r.classen/Shutterstock

Following the news that Apple will no longer use GPUs from Imagination Technologies in its iPhones, the UK company is now seen as ‘uninvestable’.

When you are particularly reliant on the whims of one customer – perhaps the largest in the world – then that customer’s decision to cut all ties with you can be devastating.

This appears to be the situation for UK semiconductor business Imagination, which has revealed that Apple is cutting ties in a move to develop its own graphics processing units (GPU).

Believes patent infringement will occur

Imagination has said that any new devices Apple brings out will not be covered by existing licensing and royalty agreements, meaning a significant loss in revenue for the company.

“Apple has asserted that it 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,” Imagination said in a statement.

It appears as if the split between the two has not been amicable. The statement goes on to say that “Apple has not presented any evidence to substantiate its assertion that it will no longer require Imagination’s technology”, alleging that infringements of patents, intellectual property and confidential information are likely.

“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,” it said.

Not wanting to cut all ties with its biggest customer, however, Imagination has said it will look to discuss “potential alternative customer arrangements” for its existing loyalty agreement, which expires in two years.

Imagination shares

Imagination’s share price shows a noticable freefall. Image: Google

‘We view Imagination as now uninvestable’

Regardless, the damage to Imagination has been considerable, with the company’s share price plummeting by as much as 70pc following the news.

Speaking with Forbes, Northern Trust Securities analyst Neil Campling revealed the extent of the damage from an investor’s perspective.

“We view Imagination as now uninvestable. This is what we would describe as a black swan moment for the company and investors in Imagination.”

Until today’s announcement, the company had seen its stock climb by as much as 400pc since 2009, as the iPhone’s power on the market grew exponentially.

With around half of its revenue coming from Apple, Imagination has seen its value cut from $1bn to $360m in the space of a week.

Apple logo. Image: r.classen/Shutterstock

Colm Gorey was a senior journalist with Silicon Republic