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Imagination Technologies – claims license agreement “Discussions with Apple”, Er…

By Steve Moore | Tuesday 4 April 2017

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.

Shares in Imagination Technologies (IMG) are currently a bit ahead today – but this only after a precipitous fall yesterday on the back of a “Discussions with Apple regarding license agreement” announcement.

There is noted discussion on “potential alternative commercial arrangements for the current license and royalty agreement” - but this is after Imagination “has been notified by Apple Inc., its largest customer, that Apple is of a view that it will no longer use the group's intellectual property in its new products in 15 months to two years time… Apple has asserted that it has been working on a separate, independent graphics design in order to control its products”.

Er, Imagination’s been more “notified” and “asserted” to than in “Discussions with Apple regarding license agreement” then!

Imagination notes its technology “has formed the basis of Graphics Processor Units in Apple's phones, tablets, iPods, TVs and watches” and that it “believes that it would be extremely challenging to design a brand new GPU architecture from basics without infringing its intellectual property rights”. Accordingly, it “does not accept Apple's assertions” and “has reserved all its rights”.

The announcement also includes that Apple license fees and royalties are expected to be approximately £65 million for Imagination’s year ending this month, with “minimal direct costs associated with this revenue stream”. This compares to overall forecasts of revenue of circa £140 million and a pre-tax profit somewhere around £20 million.

As such, it currently looks like it will have to be daunting organisational upheaval ahoy for the company to attempt to achieve a sustainable future. Faced with such, the shares are currently firmly on my bargepole list.

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