Imagination’s woes deepen as Apple says it will go it alone on GPUs

Shares in Imagination Technologies plummeted on the news that Apple would stop using its GPU (graphical processing unit) IP and turn to fully in-house designs for future iDevices.

Apple, which is a shareholder in Imagination, has used the UK firm’s GPU designs in its mobile chips since the first iPhone, and incorporates them in its Ax system-on-chip platforms. But the smaller company announced this week that Apple has given notice that it will terminate the current deal in 15-24 months’ time, because it has started working on an entirely inhouse design.

Imagination was defiant, saying in its statement: “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.”

It is hard to disagree with the sentiments – after all, even Intel, also previously an Imagination shareholder and licensee, has found it tough to design its own GPU. And although Apple was effective in creating its own SoC, based around its PA Semi acquisition, it was still using CPU cores from ARM plus the Imagination GPU cores. Developing a whole microarchitecture from scratch within two years seems daunting even for Apple.

Behind the words, however, this is a massive blow to a company which has already been struggling with the tough conditions of the GPU market. It has suffered two years of losses and at the start of 2016, its CEO, Sir Hossein Yassaie – who had run the company since 1998 – stepped down, and Imagination sold its digital audio unit, Pure, and promised to cut around £15m from operating expenses, while reinvesting about £2m of that in its GPU architecture, PowerVR.

However, some of that investment will have been justified by the Apple deal, which accounted for £60.7m in revenues in the 2016 financial year and are projected to bring in £65m in the current year.

It remains to be seen whether Apple really plans to go it alone, or whether it is trying to pressurize Imagination, in its current beleaguered state, into a better deal as part of its legendary supply chain and cost efficiencies. If the iPhone maker is serious, it will be taking a significant risk on a component which is critical to device performance and to some of the most important emerging applications in virtual reality and advanced gaming.

However, the risks just as high for Imagination, which can scarcely afford to lose its largest customer – or to foot the legal bill if it chooses to follow through on its bold statements and sue.

Imagination also owns CPU core provider MIPs, but in both its GPU and CPU businesses it has been under intense pressure from larger UK rival ARM. MIPS has largely failed to make inroads into ARM’s domination of the mobile processor space, though it is showing some signs of leadership in wearables and has a valuable foothold among Chinese IoT chip firms. Meanwhile, ARM’s Mali, for years a definite underdog to PowerVR, overtook its competitor in annual shipments in 2014.