Just over a month ago, Imagination Technologies dropped the bombshell announcement that their largest customer, Apple, would be phasing out their use of Imagination’s GPU IP in their SoC GPU designs. Specifically, Apple expects that they will no longer be using Imagination’s IP for new products in 15 to 24 months. This put Imagination in a significant pinch, as Apple is a full half of the company’s overall revenue and 69% of their GPU revenue. As a result, Imagination stands to lose the bulk of their GPU revenue starting two years down the line.

At the time the company announced that they would be engaging with Apple to discuss “potential alternative commercial arrangements” to the companies’ current agreement, and now a month later, Imagination has published a further update on that. Discussions in the last month have not made what Imagination considers satisfactory progress, and as a result they are escalating the discussion to go through the dispute resolution clause of their current contract.

Just what this will entail is unknown since the contract isn’t public, but as Imagination so delicately puts it, they’re seeking to reach an agreement with Apple “through a more structured process.” It’s unknown what will happen if this process fails, but for the moment it does not appear that a further escalation is off the table. If nothing else, Imagination will have the option of taking Apple to court for patent and IP violations once the current agreement expires. Though the company is also making it clear that they’d rather not go that far; it’s hard to imagine Imagination wants to go toe-to-toe with the most valuable company in the world, especially once their revenue takes a significant hit.

Meanwhile in Imagination’s bombshell of the month, alongside today’s Apple update, the company is also announcing that they are going to be refocusing the company to focus entirely on the GPU business. To that end, the company is putting their remaining non-GPU businesses – the MIPS CPU business and the Ensigma communications business – on the market. Imagination is not listing an expected price for either business at this time – or if they have already lined up any suitors – but the company believes that given the improved fiscal performance of these two divisions, that they are in a good position to sell the two divisions.

MIPS and Ensigma have been two of Imagination’s major efforts to diversify the company away from their original core business of GPU IP. MIPS was acquired by Imagination for $60M $100M in 2012 – about 4.5 years ago – while Ensigma has been part of the company since the turn of the millennium. MIPS in particular has been a long-running architecture in the embedded space, and along with x86, is the other alternative CPU architecture supported by Google’s Android OS. So the news that the engineering team and product portfolio behind the #2 architecture in mobile and embedded are being sold is a major development. MIPS and Ensigma are now joining Imagination’s Pure business, which is also in the process of being sold off.

In announcing this latest sale, Imagination noted that they are doing this to strengthen their balance sheet. At the risk of reading too much into a short fiscal statement, this doesn’t sound like a move that they are making with gusto, but rather something they have to do to save the company. Selling these divisions means that the company’s efforts to diversify have failed, but given their situation, it appears that focusing on their core competency is their best bet. Still, it does risk certain efforts in the long-term, such as Imagination’s OmniShield virtualization security technology, since that was a synergy play between owning both CPU and GPU IP.

As for Imagination’s GPU business, the sale of MIPS and Ensigma means that Imagination will be transitioning to a pure-play GPU IP provider. The company continues to develop new IP here, including the recent Furian architecture, so they have products. The question that remains is how they will survive (and ideally thrive) a post-Apple world; even if the companies sign a new agreement, Imagination’s fate is going to be based on how well they can sell GPU IP to the remaining SoC vendors, particularly in the STB and Android mobile spaces. With all other businesses in the process of being sold, the fate of Imagination’s GPU business will determine the fate of Imagination itself.

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  • philehidiot - Friday, May 05, 2017 - link

    I think this is a very good analysis. I can not understand why you would go down the route of selling your plan B in this situation if it was even barely profitable on it's own. This firm will be cut up into it's various IPs and sold at auction, likely by liquidators. Their only route to success is to create amazing new IP that everyone wants but you can bet that the best people who are most likely to do this are already looking for new work / being poached. Reply
  • Ananke - Thursday, May 04, 2017 - link

    Apple, and Amazon.. and many more, always twist the agreements to push you into more dependability, so they become your only major customer. It is a tendency in the last decade. eventually, they will screw you majorly and you'll be forced into bankruptcy, selling them whatever they need - in this case most likely Imagination Tech is getting prepared to be acquired by Apple and become their GPU department, and now they simply strip away whatever Apple doesn't want to purchase Reply
  • melgross - Saturday, May 06, 2017 - link

    Excuse me, but that's not true. These small companies benefit from a very large company like Apple. But if they don't take advantage of it, it's their fault.

    Apple is responsible for making them a much larger company than they were. Then, it was up to them to convince other companies that Apple as a customer, a customer with SoCs that are far more advanced than any other. Was a good reason why they should use their technology as well.

    But it didn't work. In fact, just look at their sales. While apple's licensing g fees remained about the same, or actually increased, their sales went from $170 million in 2014, with a slight loss, to $120 million end if 2o16, with an $80 million loss. About half that loss is attributed to one time expenses relating to purchases, etc. But they lost a lot of other business during those two years.

    It's why they offered to sell to Apple. I suppose they felt that if more business left, almost everything would be Apple anyway. But $960 million was far too high for a $120 million company with large losses. It made no sense. As a public company, they couldn't make an offer that was less Than their market value, even if it were overinflated. Shareho,dears, which includes other companies, remember, would complain if the sale weren't over current market value. So they were in a bind.

    Anyway, their future looks limited. And, sure, I've been saying that despite what they are saying publicly about what they're doing, they are possibly trying to look more attractive to Apple, if not others. But their valuation needs to come down to somewhere what they're really worth. With Apple gone, and the rest of the businesses gone, they're business could drop $50 million a year, or less.what are they worth then if they're losing money? Many companies are worth less than their annual sales, even when they making a profit . Too many tech companies are getting away with murder here.
    Reply
  • Meteor2 - Friday, May 05, 2017 - link

    Only turn down such a big deal if it crowds out your ability to serve other customers. If it does, you've got bigger problems (your business processes don't scale). Reply
  • melgross - Saturday, May 06, 2017 - link

    Well, with Apple, they had far more money for R&D and marketing. Why didn't they succeed in getting more customers? It's hard to know. Usually when a very large, and advanced company validates t]your technology and product, other companies are attracted as well. But that didn't seem to work for them. Maybe they were asking too much in licensing fees. Reply
  • Lolimaster - Monday, May 08, 2017 - link

    Your last sentence is the answer.

    "We won't give you peasant android soc prices, we are and apple provider, we're better than them".
    Reply
  • Lolimaster - Monday, May 08, 2017 - link

    You grow and totally depent on them, they leave you, you can't even pay the overgrown salaries. Reply
  • osxandwindows - Thursday, May 04, 2017 - link

    So you're every company should money on the table.

    Thank god you don't run a compnay.
    Reply
  • osxandwindows - Thursday, May 04, 2017 - link

    So you think a company should leave money on the table? wow. Thank god you don't run a company.

    Hint, when Apple went to TSMC samsung did not go down.
    Why? because they did not depend on a single customer.
    Reply
  • name99 - Thursday, May 04, 2017 - link

    We have ABSOLUTELY no idea what happened in this case.

    For all we know, Apple has been trying for years to get Imagination to go in a certain direction ("We really want to transition from a generic GPU to something that's more a throughput engine, like Xeon Phi" for example) and Imagination kept saying "we've been in this business longer than you. Trust us, we know the market".
    For all we know Apple gave them a perfectly reasonable takeover offer and Imagination refused, under a deluded belief that they were worth more.

    Given that we don't know anything, insisting on who's to blame seems premature.
    The one fact we do know is that Imagination bought MIPS, and seems (as far as I can tell) unable to have made a success of it, which suggests to me that they are deluded about either the market or their particular skills and business prowess. Which leads back to my second paragraph...
    Reply

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