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Ever since Apple launched the original iPhone, information technology's worked closely with Imagination Technologies. Even after Apple began building its own GPU compages, information technology relied on Imagination for other edifice blocks of its full solution. Apple, however, appears to be bringing that relationship to an end, and Imagination Technologies' stock has cratered as a result.

On Friday, Imagination Technologies was trading at 268.75 pence sterling. As of this writing, information technology'due south trading at ~102 pence sterling. That'south a cataclysmic drop for the company, and it's driven past a letter IT posted earlier today. It reads, in part:

Imagination Technologies Grouping… has been notified by Apple tree Inc. ("Apple"), its largest customer, that Apple is of a view that it volition no longer use the Group's intellectual belongings in its new products in 15 months to two years' time, and every bit such will non be eligible for royalty payments under the electric current license and royalty agreement…

Apple has not presented any testify to substantiate its assertion that it volition no longer crave Imagination's technology, without violating Imagination's patents, intellectual property and confidential information. This evidence has been requested by Imagination merely Apple tree has declined to provide it.

Further, Imagination believes that it would be extremely challenging to design a brand new GPU architecture from nuts without infringing its intellectual property rights, accordingly Imagination does not accept Apple tree'due south assertions.

Apple tree's notification has led Imagination to discuss with Apple tree potential culling commercial arrangements for the current license and royalty agreement.

As recently as terminal year, Apple was reportedly in talks to purchase Imagination Technologies, but those deals fell through. Instead, Apple tree hired a number of Imagination's one-time employees and engineers, which may be part of why IT is taking a rather aggressive stance with its claims that it would exist difficult for Apple to develop a non-infringing part. Part of what makes the situation muddy is that Apple tree may accept already congenital its own custom GPU. Apple tree'south payments to Imagination Technologies totaled £60.vii through the twelvemonth that ended in Apr 2016, and Apple is expected to pay roughly £65 million ($81 meg USD) through April of 2017. That's roughly one-half of Imagination Technologies' revenue, which explains why the stock has taken such a beating.

Imagination Technologies' statements about taking Apple to court aren't an empty threat, but court proceedings aren't a substitute for ongoing license revenue. Even if IT won a courtroom case against Apple tree, the appeals and counter-suits could elevate on for years. The judicial organization isn't designed to settle these kinds of disputes quickly, and It isn't in neat shape right at present. The visitor fired 350 people last year and announced information technology would seek to reduce operating costs afterward a slump in iPhone sales slugged its bottom line. To-date, Imagination Technologies has tried to protect its PowerVR, MIPS, and Ensigma product divisions from cuts, but that may no longer be possible. PowerVR has provided the bulk of its earnings for years, so nosotros wouldn't be surprised to meet the other segments jettisoned first.