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(Image courtesy of Karlis Dambrans, Creative Commons)

Hunkering Down for Apple Conflict, Imagination Looks to Divest Everything But Graphics

Imagination said that it wanted to talk through Apple's plans for homegrown graphics in a more "structured" way. It isn't clear if that means a lawsuit.

Imagination Technologies fell on hard times in April when Apple announced plans to stop using its graphics chips in future smartphones, tablets, and other products. Within hours, over $500 million vanished from Imagination's stock market value, throwing a wet blanket on its future fortunes.

Imagination's next move became clearer in regulatory documents filed Thursday. The company said that it would divest its other businesses and start a "dispute resolution procedure" in an effort to salvage its lucrative ties to Apple. The moves are a particularly low point for Imagination, which for years had ambitions to compete with ARM. 

On the chopping block is a business that sells rights to the MIPS architecture, which is notably used in Mobileye's machine vision chips for top-tier automobiles. The U.K. company is also aiming to sell Ensigma, a business that rents intellectual property for wireless Internet of Things devices.

Disposing of the businesses will help Imagination focus on its flagship PowerVR chips, which dominate high-end smartphones and which the company is marketing for virtual reality. The graphics technology is at the heart of the recent dispute with Apple, which has used Imagination's chips in iPhones since 2008.

Apple's graphics plans spilled out last month. Imagination, which collects royalties on devices sold with its technology, notified investors that Apple would start using its own graphics in the next year or two. Imagination, which stands to lose half its annual revenue with Apple's change of heart, expressed doubt that smartphone maker could do so without infringing on its patents.

It became apparent Thursday that Imagination is seeking a compromise before its licensing deal with Apple expires. When Apple finishes its custom graphics chips next year, Imagination could be left without its largest customer by revenue. It is still unclear whether the chip designer plans to open a lawsuit against Apple.

“Imagination has been unable to make satisfactory progress with Apple to date regarding alternative commercial arrangements for the current license and royalty agreement,” the company said. Without elaborating, Imagination said that it wanted to resolve the standoff in a more “structured" way.

The announcement dealt another heavy blow to the 32-year-old company. Last year, Imagination cut 350 jobs – a fifth of its workforce – and Hossein Yassaie, its founder, departed after eighteen years as C.E.O. In recent years, it has lost business to ARM's Mali graphics chips, which are increasingly used in Android smartphones.

The fallout is a spectacular display of the power that Apple holds over semiconductor suppliers. The shift to custom graphics is particularly ironic because of how vital Imagination's technology has been to Apple, which owns almost 10% of the company and has poached engineers from its employee ranks.

For that reason, Imagination is skeptical that Apple can design a new graphics architecture without its help. In an April regulatory 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.”

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