UK chipmaker’s shares plunge 60% as apple ends deal

Shares of Imagination Technologies fell 60% after Apple said it would stop using the company's chip designs for Apple's products.

The chipmaker’s business is expected to take a hit as Apple said it is developing its own technology to reduce its future reliance on Imagination Technologies. Apple license fees and royalties, as disclosed in Imagination’s Annual Report, represented revenue of £60.7 million for the year ended April 30 2016 and are expected to be approximately £65 million for the year ending April 30 2017.

However, Imagination Technologies expects that it would be “extremely challenging” for Apple to design a new technology from basic without infringing its intellectual property rights, according to its statement.

“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.

Brian Colello, senior equity analyst with Morningstar thinks Apple is still innovating with introductions of Apple Pay, Apple Watch, Apple TV, and AirPods, each of which could drive incremental revenue but, more important, help to retain iPhone users over time.

Apple’s iPhone and IOS operating system have consistently been rated at the head of the pack in terms of customer loyalty, engagement and security, which bodes well for long term customer retention.

“We suspect that Apple is trying to accelerate replacement cycles for the iPad, as it appears that the useful life of an iPad does not mirror that of a smartphone in the two- to four-year range, but rather approaches the life of a PC in the four- to six-year range,” said Colello.

MorningStar

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