Apple Still Holds Fate of Imagination Technologies One Year On

(Bloomberg) -- Just over a year after Apple Inc. revealed it would phase out its use of technology from Imagination Technologies Group Plc, the future of the U.K.-based designer of graphics chips is still at risk.

Imagination warned that if Apple doesn’t pay any royalties on its latest generation of iPhones and iPads, there may be "material uncertainty" regarding the future of the company, according to a U.K. filing published Oct. 7.

In April 2017, Imagination warned that Apple would no longer use its technology within 15 months to two years. A the time, Apple accounted for more than half of Imagination’s sales, leading to a plunge in the U.K. company’s stock. Imagination was acquired by Chinese private equity firm Canyon Bridge Capital Partners for 500-million-pounds ($660.5-million) in September 2017.

Apple began moving away from Imagination last year when it began using its own graphic chips, or GPUs, in the iPhone 8 and iPhone X. That continued with the iPhone XS and Apple Watch Series 4 recently released. Apple uses Imagination GPUs in other products like the iPad and Apple TV, but is expected to eventually transition all of its iOS-based products to include its own graphics processors.

Apple still makes up 62 percent of Imagination’s revenue, and the two companies are in talks about future royalty payments, according to filings by Imagination. The company said it believes it will be “extremely challenging for Apple to design a GPU in a way that allows them not to pay royalties to Imagination.”

Canyon Bridge has provided Imagination with $10 million in financing since January. Imagination will need further financial support if Apple ceases to pay royalties on its latest generation of iPhones and iPads, according to the filings.

Apple isn’t the only challenge facing Imagination. The company, based outside London, has put its WiFi tech business Ensigma back up for sale, after shelving plans last year following the takeover.

Imagination posted a pretax loss of 51 million pounds for the 8 months to Dec. 31, 2017, compared with 28 million pounds for the year to April 2017, according to the recent filing. Imagination attributed the drop in licensing revenue to uncertainty over the future of the business.

Imagination is continuing to lose staff to Apple, which opened a new office in 2017 just 10 miles away in St. Albans. Almost 30 engineers have swapped positions at Imagination for Apple, according to profiles on LinkedIn. Apple is currently advertising 15 job vacancies for its St. Albans office.

©2018 Bloomberg L.P.