Following Apple’s very public decision to break with its graphics core supplier Imagination Technologies, the UK firm says it has initiated a “dispute resolution procedure”, and has also put two of its three main business units up for sale. It aims to sell off processor core designer MIPs, and connectivity vendor Ensigma, to polish up its balance sheet in the wake of the Apple disaster.
Imagination said last month that Apple – an investor and its largest customer – was going to try to develop its own graphics processing units (GPUs) for future iDevices, rather than using the PowerVR core and software. That led Imagination’s market capitalization to fall by over 60% to £290m. Apple accounts for about half of the smaller firm’s annual revenues and is one of its largest shareholders, with an 8.1% stake.
The plan to sell the two non-PowerVR businesses looks like an act of desperation. The acquisitions of MIPS and Ensigma were supposed to create a full IP platform, encompassing the CPU, GPU and WiFi/Bluetooth connectivity, which would be particularly targeted at emerging device categories in the Internet of Things, self-driving cars and wearables, and would make Imagination more competitive with ARM – whose Mali GPU has overtaken PowerVR in the past year.
Many of Imaginations’s recent developments have been about optimizing the MIPS/Ensigma/PowerVR triangle for low power connected devices, and trying to steal a march on ARM in terms of building an ecosystem, particularly in China. In April 2015, it showed off new versions of its Ensigma cores specifically targeting IoT designs. Those Ensigma Whisper radio processing units (RPUs) run on MIPS processing cores and integrate WiFi 802.11n, Bluetooth LE, or both. And it also debuted a series of ultra-low power MIPS cores dubbed ‘wearables processing units’ or WPUs, securing several Chinese partnerships in the process.
There had been some more recent progress too. Ensigma had been reporting good growth even though it was lossmaking. Together with MIPS, it generated £21m in revenue in the six months to October 31 2016 (the last time Imagination reported results). The Ensigma element had doubled its revenues in that period, thanks to a rise in intellectual property licensing for its connectivity technology in IoT and mobile devices and in drones.
MIPS’ profits and royalties, in the second half of 2016, were up but its licences were flat. It highlighted progress in the embedded processor space and in its more traditional strongholds of home broadband and set-top box gear. The MIPS I6500 core was also chosen by Mobileye for its latest EyeQ5 auto-focused machine vision chip, which will reach the market next year.
In October, Imagination CEO Andrew Heath told the Financial Times: “We plan to focus on our core. We have protected PowerVR, MIPS and Ensigma businesses from cuts and restructuring, we are actively recruiting in those areas.” Prior to that, the company had sold its lossmaking and non-core digital radio division, Pure, for £2.6m to AVenture AT of Austria, and made other cutbacks in the wake of some poor results and the departure of long-time CEO Sir Hossein Yassaie.
But the loss of Apple – combined with Mali stealing market share in other areas, and MIPS doing little to dent the lead of ARM’s processor cores – is casting very dark shadows over Imagination. It will now focus entirely on building up PowerVR even without Apple – the GPU platform accounts for about 70% of revenue.
Imagination has also launched a formal dispute process, after being “unable to make satisfactory progress with Apple to date” regarding finding alternative commercial arrangements for the current licence and royalty agreements. The goal, it said, was to reach “an agreement through a more structured process”.
Of course, there is speculation that Imagination will file patent lawsuits against Apple, having expressed strong doubts that the iPhone maker can develop a GPU inhouse in a short time without using elements of its core. When that blow was announced, the UK firm 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. This evidence has been requested by Imagination but Apple has declined to provide it.”
The company went on to state what must be the obvious, even for a company of Apple’s huge resources and creativity – that it is very hard to design a GPU from scratch. The statement continued: “Further, 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.”
However, any lawsuit could not happen until Apple’s chip actually appears, in over a year from now, and even then, patent battles require huge resources.
So Imagination needs to prioritize efforts to boost PowerVR in other areas, such as automotive – where it has been working with Intel acquisition Mobileye, among others – and to reduce costs and boost cash in order to survive the transition. Some expect Imagination itself to be sold once its value has been established more clearly after the divestments, and an Apple settlement.
Given the strategic importance of advanced GPU technology in markets as diverse as artificial intelligence and wearables, Imagination should be more attractive, if it does come to market, than MIPS, whose revered but ageing CPU IP technology has been losing ground to ARM. It is unclear who might buy the firm, which Imagination acquired in 2012 for $60m.
Kevin Krewell of Tirias Research told EETimes: “MIPS is still a classic CPU design with scalability and an established software ecosystem” and speculated that an electronic design house such as Cadence, Mentor or Synopsys might be interested, or even a major licensee like Microchip. MIPS has been building up some business, especially IoT-related, in China, although Imagination does not own the MIPS IP, which could well be the chief lure, as China’s chipmakers look to build up their intellectual property as well as their products and manufacturing prowess.
As part of the acquisition of MIPS, the ownership of the IP was transferred to a consortium called Bridge Crossing, which includes ARM. At the time of the deal, ARM noted that the group was paying $350m in cash to acquire rights to a portfolio of about 580 patents and applications, with ARM contributing almost half of that sum.