Shares in British tech firm Imagination Technologies crashed yesterday, why and is there hope for the business?
Imagination Technologies is in the chip business, among other things it provides the graphics processor chips, the PowerVR, that sit inside Apple products.
Yesterday, Apple gave the UK firm notice that it will be terminating its contract in two-years time.
Shares crashed, falling from around 300p to 103p. Market cap was reduced to around £300 million, meaning it lost some £600 million in value.
Its deal with Apple is worth around half of the company’s turnover. Up until recently, Imagination had been experiencing a trying time, it was making losses, it issued a profits warning and its long serving CEO left.
Things started to change last year, under the new CEO Andrew Heath, it cut costs, focused on core products – ditching the Pure consumer range – and it recently made a profit.
The company was in recovery mode and then Apple dropped the bombshell.
You can see why shares crashed but it may be too soon to write the company’s obituary.
For one thing, Imagination maintains that Apple will have its work cut out developing its own graphics chips without infringing Imagination patents. For sure, Apple has been poaching some of the UK firm’s talent – but even so, it seems that Imagination is afforded protection by its IP.
Maybe Apple reckons it has found a way to bypass the patents – although Imagination is sceptical it can do this.
Some speculate that Apple is looking to buy the British company, it did after all flirt with the idea last year. Maybe it is just trying to reduce the amount of money it would have to fork out.
But there is another point. Imagination technology also has massive potential in the Internet of Things business, within autonomous cars and with virtual and augmented reality, and it has been focusing on doing more business with Chinese and Taiwanese companies.
Imagination Technologies has lost a game, but the match is far from over.