Apple Drops Imagination Technologies in Favor of Homegrown Graphics

Apple will stop using graphics chips from Imagination Technologies in a future generation of smartphones, tablets, televisions, and watches. The company has notified Imagination that its in-house chip engineers are already working on new graphics technology.

Imagination said in a regulatory statement on Monday that Apple would stop using its intellectual property in smartphones and other products in around 15 to 24 months. The company, which collects royalties on devices sold with its technology, stands to lose half its annual revenue when Apple switches to homegrown graphics.

“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,” it said in Monday's statement. Imagination's stock fell 61.6% on Monday, shaving 500 million pounds off its market value.

The abrupt end of its relationship with Apple would be the latest blow to the 32-year-old company. Last year, Imagination revealed plans to cut 350 jobs - or a fifth of its workforce - and its founder Hossein Yassaie quit after eighteen years as chief executive. At the same time, the company vowed to focus on its flagship PowerVR graphics chips, which dominate high-end smartphones.

Apple is Imagination's largest customer and a vital source of licensing revenue. Apple paid out 60.7 million pounds in royalties for the fiscal year ending April 30, 2016. Imagination, whose revenue was 120 million pounds last year, expects that sum to reach 65 million pounds this fiscal year.

Apple is not new to making custom chips for its smartphones and other gadgets, but Imagination's technology is deeply woven in those products. Apple has been paying for Imagination's designs since 2008 and has poached engineers from its employee ranks. Apple owns almost 10% of the chip designer and once thought about buying it outright.

That long history could be setting the stage for patent conflicts. "Apple has not presented any evidence to substantiate its assertion that it will no longer require Imagination’s technology, without violating Imagination’s patents, intellectual property and confidential information," the company said.

Imagination is skeptical that Apple's new graphics architecture will be completely divorced from its designs. In the statement, the company said that "it would be extremely challenging to design a brand new GPU architecture from basics without infringing its intellectual property rights.”