Imagination’s shares plummetted on the news that Apple plans to stop using the British company’s graphics technology in its iPhones, iPads and Apple Watches
Imagination Technologies on Monday said Apple plans to stop paying it royalties for graphics technology used in iPhones, iPads, Apple Watches and other mobile devices, sending shares in the UK company crashing by 70 percent.
The plunge took Imagination’s shares to their lowest level in seven and a half years, and was the largest single-day selloff since the company listed in 1994.
Two-year royalty cutoff
Apple said it was working on “separate, independent” graphics technology and would therefore be “reducing its future reliance” on Imagination, the British firm said in a statement.
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”, and as such would plan to stop royalty payments, Imagination said.
Imagination said Apple paid it £60.7 million in royalties for the year ending April 2016, half of the company’s total revenues, and is expected to pay about £65m this year.
The company said it has begun talks on alternative commercial arrangements for the current license and royalty agreement as a result of Apple’s notification.
In the meantime, Imagination said Apple hadn’t yet presented any evidence to back up its claim to be able to free itself of royalty obligations to Imagination.
“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,” Imagination stated. “This evidence has been requested by Imagination but Apple has declined to provide it.”
It said it would be “extremely challenging” for Apple to switch to graphics technology that didn’t infringe on Imagination’s patents, meaning there could be grounds to contest the planned change.
“Imagination believes that it would be extremely challenging to design a brand new GPU architecture from basics without infringing its intellectual property rights, accordingly Imagination does not accept Apple’s assertions,” the company stated.
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