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(Image courtesy of Fritzchens Fritz, Creative Commons).

Imagination Runs Out of Ballast To Throw Overboard

In April, Imagination Technologies announced that Apple would stop licensing its graphics chips for smartphones and other gadgets. In May, the company said that it would stay afloat by selling its other business units. Now, it has also started shopping whatever would have been left.

Imagination said in a regulatory filing Thursday that it is trying to sell itself completely. The notice is evidence not only of Apple’s power over suppliers but also the growing competition from ARM and others that crippled Imagination’s graphics business, which it aimed to protect after cutting loose its MIPS and Ensigma units.

“Imagination announces that over the last few weeks it has received interest from a number of parties for a potential acquisition of the whole group,” the company said. Imagination, based in Kings Langley twenty miles outside of London, sells the blueprints to chips incorporated directly into SoCs.

Imagination has been in dire straits since it told investors in April that Apple would stop using its graphics chips in smartphones, tablets, watches, and other devices within two years. Apple plans to put its own graphics into custom chips. That will disembowel Imagination, whose stock plunged more than 60% after the announcement.

Last year, Apple paid 60.7 million pounds in royalties to Imagination, whose revenue last year totaled 120 million pounds. This year, the company estimates that it will reap 65 million pounds from the Apple contract, which experts credit for keeping its PowerVR graphics alive.

Losing Apple was the last nail in the coffin for Imagination, which struggled to diversify after Apple signed a licensing deal in 2008. It has faced stiff competition from ARM, which increasingly licenses out its Mali graphics to the same customers using its Cortex technology in the vast majority of smartphones and wearables.

Imagination failed to create a similar one-stop-shop. For years, it tried to combine its graphics – which were more powerful but more costly than ARM's – with MIPS cores, optimized and packaged for customers with drivers and OS ports. Other competition came from graphics licensed by Nvidia and Qualcomm.

Many chip makers could be a landing spot for Imagination. But potential bidders could also include Apple itself, which has plundered engineers from Imagination’s employee ranks for years. Imagination has said that it doubts Apple can create its own chips without violating patents. 

Other bidders might appear in China, which plans to significantly expand domestic chip manufacturing over the next decade. This month, Tsinghua Unigroup, a national champion for Beijing’s ambitions, had acquired a 3% stake in Imagination. Apple owns 8% of the 32-year-old firm.

Imagination said in the regulatory filing that it is already "engaged in preliminary discussions with potential bidders." The company said that the sale of the MIPS and Ensigma units is moving forward, and that there is no guarantee that the entire business will be sold.

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