Apple’s £500m bombshell for UK chip designer Imagination Technologies

Apple has dealt a £500 million blow to chip designer Imagination Technologies after it warned it would drop the UK firm’s expertise — used in best-selling products like iPhones and iPads — within two years.

The US behemoth accounted for more than half of Imagination’s £120 million revenues last year, relying on its patents for the graphics processors in its smartphones, tablets, iPods, televisions and watches. Apple, which owns 8.2% of Imagination, held talks over buying the firm last year, but a deal foundered.

Today Hertfordshire-based Imagination shocked the market with the news 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”, denying it payments under its current license and royalty agreement.

The shares slumped a massive 179.4p, or 67%, to 88.9p, erasing around £510 million from the value of the company within seconds of trading today.

Its trading relationship with Apple stretches back a decade, but the $941 billion (£749 billion) giant “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”.

Imagination is in talks with its biggest customer over “potential alternative commercial arrangements” to the licensing deal but also warned it is prepared for a legal battle if it believes that Apple has violated its patents.

It stated: “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. This evidence has been requested by Imagination but Apple has declined to provide it.

“Further, Imagination believes that it would be extremely challenging to design a brand new architecture from basics without infringing its intellectual property rights, accordingly Imagination does not accept Apple’s assertions.” The firm “has reserved all its rights in respect of Apple’s unauthorised use of Imagination’s confidential information and Imagination’s intellectual property rights”, it added.

The split also casts major doubts over the future of 1200 Imagination staff. Chief executive Andrew Heath refused to comment on job cuts on a call with analysts today.

N+1 Singer analyst Oliver Knott said: “Given the uncertainty around [Imagination’s] largest revenue stream, and current net debt position, we move to Sell.”