On Monday, April 3rd, multiple news outlets were reporting that American consumer gadget developer Apple Inc. (NASDAQ:AAPL) had informed British semiconductor manufacturer Imagination Technologies (LON:IMG) that it would no longer be the designer of graphics processing units (GPUs) for Apple portable electronic devices. Shares of Imagination Technologies plunged 70 percent on the news and further comments from executives indicate that a patent battle might be brewing over Apple’s business decision.
According to reports from Reuters and The Wall Street Journal, Apple has informed Imagination Technologies that it will stop using the British firm’s technology within the next 15 months and will instead work on a new design. Andrew Heath, CEO of Imagination, a company which has supplied chip designs for Apple products going back to the first iPod, has released a statement reported by both publications on the status of Imagination’s related intellectual property assets:
“It would be extremely challenging for Apple to design a brand new GPU (graphics processor unit) architecture from basics, that is, without infringing our IP rights and also infringing our confidential information… As such we do not accept their assertion that they no longer require our technology.”
Both Reuters and The Wall Street Journal report that Apple has declined to comment in the case. Financial analysts cited by the publications suggest that Apple’s contract with Imagination accounts for 50 to 60 percent of the British R&D firm’s annual revenues. The drop in stock price cut Imagination’s market capitalization from £760 million ($960 million USD) on Friday afternoon down to £275 million ($372 million USD) by the end of business on Monday.
As The Wall Street Journal notes, this is an interesting new development in Apple’s recent quest to cut its semiconductor costs. In January, Apple followed the Federal Trade Commission (FTC) in filing suit against American semiconductor designer Qualcomm Inc. (NASDAQ:QCOM) for violating fair, reasonable and non-discriminatory (FRAND) licensing obligations.
Apple’s decision to pull away from Imagination Technologies also comes almost a year after Apple dropped a bid to purchase Imagination, instead deciding to sell a 3 percent share in the company to a Chinese entity; Apple had held a 9 percent stake in Imagination. Last October, Business Insider reported on Apple’s brain drain of Imagination’s employees, which included a COO at Imagination who left for Apple last July after 20 years at Imagination. A handful of other technical employees were poached by Apple starting in September, Business Insider reported.