Apple Supplier Raises Patent-Fight Prospects as Shares Tumble 70% -- Update
April 03 2017 - 10:05AM
Dow Jones News
By Stu Woo
LONDON--A small but critical Apple Inc. supplier here is raising
the prospect of a patent fight with the smartphone giant after
Apple said it would stop using its technology to process graphics
in its iPhones and other devices.
Shares in Imagination Technologies Group PLC fell as much as 70%
in London trading after it disclosed that Apple--its biggest
customer--would stop using Imagination technology in the graphics
processing units in its devices within 15 months to two years.
Graphics processing units, or GPUs, are computer chips that
power videos and other animations on smartphones, computers and
other gadgets. Based in the English village of Kings Langley,
outside London, Imagination runs its business based on intellectual
property, designing and selling basic blueprints for GPUs, but not
manufacturing the chips itself.
Imagination said Monday that Apple told the company it was
working on a "separate, independent" design. Imagination said it
believed it would be "extremely challenging" to design a brand-new
GPU architecture "without infringing its intellectual property
rights."
Imagination licenses its technology to Apple, which pays it
royalties. Imagination said it was in talks with Apple about an
alternative licensing and royalty arrangement.
An Apple spokeswoman declined to comment. An Imagination
spokesman said the company was at the beginning of a process with
Apple.
Imagination is a relatively small part of the global smartphone
supply chain, but its technology has been a key component of Apple
products for years, including its phones, tablets, iPods and
watches. Apple last year said it held discussions with Imagination
about acquiring the chip supplier but didn't plan on making an
offer.
The chip designer had a market value of about GBP760 million, or
about $950 million, when markets closed Friday, before the Apple
disclosure. The news Monday reduced its market capitalization to
less than GBP300 million as of Monday afternoon in London.
"The biggest risk to Imagination's business model was realized
this morning," said Roger Phillips, an analyst for Investec Bank.
He had forecast Apple would account for 50% to 60% of Imagination's
revenue this year and said other customers might not sign deals
with Imagination until it resolves its situation with Apple.
The blow to Imagination has been the second shock to Britain's
semiconductor industry, which is small but has an outsize global
influence, in less than a year. In July, Japanese technology giant
SoftBank Group Corp. agreed to acquire Cambridge, England-based ARM
Holdings PLC, which designs the basic blueprints for more than 95%
of the world's smartphone chips.
Apple, the world's most valuable company, is in a legal tussle
over intellectual property with another chip supplier. Apple in
January sued Qualcomm Inc., saying it disagreed with what Qualcomm
charged in royalties. Qualcomm has called Apple's claims
baseless.
Write to Stu Woo at Stu.Woo@wsj.com
(END) Dow Jones Newswires
April 03, 2017 10:50 ET (14:50 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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