Apple told Imagination Technologies it will no longer need the British company’s intellectual property to create graphics processors, wiping out more than two-thirds of the chipmaker’s market value overnight.
“Apple has asserted that it has been working on a separate, independent graphics design in order to control its products and will be reducing its future reliance on Imagination’s technology,” the company said in a statement.
Imagination Technologies added it believes a brand new design for a graphics processor that did not infringe on Imagination Technologies’ intellectual property would be very challenging for Apple, setting the stage for a possible fight over intellectual property in the months ahead.
Imagination Technologies has been struggling to diversify, but has remained dependent on its largest customer, Apple, and has continued to derive most of its revenue from the PowerVR graphics processor technology that Apple says it will no longer use. Last year, Imagination Technologies laid off roughly 5% of its workforce after rumors that Apple was going to buy the company failed to pan out.
Apple’s move to bring its graphics chip technology in-house is part of a larger trend that is impacting several of the largest companies in the mobile ecosystem. Google and Amazon.com have both talked about designing their own chips, and Apple has been designing its own central processing units for several years, although it still uses cores designed by ARM, another British company that licenses intellectual property related to chip design. ARM recently became part of Japan’s SoftBank, the carrier that owns a controlling interest in Sprint.
The decision to move forward without Imagination Technologies’ intellectual property is a more radical change than Apple’s decision to design its own CPUs using ARM cores. If the graphics chips that Apple ultimately brings to market do not rely on a completely new architecture, look for another bruising patent battle that will play out in the courts.
Apple is already on track to meet another one of its key suppliers in court. Earlier this year, the iPhone maker brought a $1 billion lawsuit against Qualcomm, claiming the leading maker of LTE connectivity chipsets had failed to remit payments promised to Apple.
Apple’s pressure on its chip suppliers can be seen as part of an ongoing effort to control costs at a time when growth at the highest end of the smartphone market is leveling off. The world’s most valuable company is under pressure from investors to maintain the eye-popping returns shareholders have enjoyed in the past.
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