Apple is likely to pay out just one third of its current royalty rate to Imagination Technologies as it begins winding down its supply deal with the chipmaker over the next two years, according to analysts at UBS financial services (via Reuters).

The prediction includes the expectation that British-based Imagination will become loss-making by 2019 without any Apple royalties to fall back on, and that the firm will have to work out a cost-cutting strategy if it is to survive.

imagination technologies logo
Earlier this month, shares in Imagination plunged after Apple informed the company that it plans to stop using its graphics technology in Apple consumer devices in up to two years' time.

The news delivered a huge blow to Imagination Technologies, which provides the PowerVR graphics architecture found in Apple's full range of iOS devices and receives a small royalty on every sale, amounting to up to half of the British firm's revenue.

Imagination said Apple had made the decision because the tech giant was developing its own independent graphics processing chips, which would reduce its reliance on the company.

Imagination is reportedly in talks with Apple over a new licensing deal, but UBS analysts forecast that Apple is likely to bring down the royalty rate, currently at around $0.30 per unit, to closer to $0.10, which is the rate Imagination currently charges customers such as MediaTek.

Valuing Imagination based on discounted cash flows, UBS estimated the company's Apple business is worth 75 pence per share. Without Apple, the stock tumbles to just 35 pence. That totals 110 pence, using a sum-of-the-parts valuation. Imagination has a market capitalization of $370 million – 2,000 times smaller than Apple's $741 billion valuation – while its stock currently trades at 103.19 pence.

Top Rated Comments

Kaibelf Avatar
56 months ago
Crazy how apple can just destroy a company. I think it's safe to assume they "made" them. Imagine this happening to Foxconn or another big supplier. Impact could cause a bigger ripple in the local economy.
Apple didn't "destroy" any company. The company was leaning far too heavily on one customer which (based on their press release not too long ago) they seemed to believe was going to last forever, and that they were entitled to have in perpetuity.

It's a bit more surprising that Imagination didn't parlay that long and lucrative relationship and expand their customer base more aggressively. It's no different than a town with a single industry pretending to be confused if the market shifts away from that industry, when they failed in the interim to plan for any diversification and the warning stories were abundant.
Score: 4 Votes (Like | Disagree)
acegreen Avatar
56 months ago
Apple wasn't necessarily paying a higher royalty rate. A higher amount? Yes. But that royalty rate could be a percentage of the device cost. X percent of iPhone yields a higher amount than x percent of a MediaTek component. Apple could actually be paying a much lower rate. Without knowing the terms, we can't say either way.
Did you even read the article, the rates are like RIGHT there.
Score: 1 Votes (Like | Disagree)
69Mustang Avatar
56 months ago
Did you even read the article, the rates are like RIGHT there?
I read the article. Apparently you didn't understand my comment. Apple paying $0.30 and another company paying $0.10 does not mean Apple pays a higher royalty rate. Hypothetical numbers here: Apple pays royalty rate of .125% of cost per unit = $0.30. MediaTek pays a royalty rate of 2% per cost of unit yielding $0.10. In that instance, Apple pays a much lower royalty rate that generates a higher payment.
If Apple just pays a flat $0.30 and MediaTek pays a flat $0.10, then Apple indeed pays a higher rate. Again, we don't know how the rates are calculated so we can't arbitrarily state Apple pays a higher royalty rate. Until we do, there's no definitive answer.
[doublepost=1492608369][/doublepost]
Crazy how apple can just destroy a company. I think it's safe to assume they "made" them. Imagine this happening to Foxconn or another big supplier. Impact could cause a bigger ripple in the local economy.
I'm not sure if you're assessing blame or making an observation. Regardless, the old adage holds true in this instance: Don't put all your eggs in one basket. As Apple brings more functionality in house (rumored) there are several other companies in the same boat. If they're smart, they'll start trying to diversify their customer base post haste.
Score: 1 Votes (Like | Disagree)
solipsism Avatar
56 months ago
Apple didn't "destroy" any company. The company was leaning far too heavily on one customer which (based on their press release not too long ago) they seemed to believe was going to last forever, and that they were entitled to have in perpetuity.

It's a bit more surprising that Imagination didn't parlay that long and lucrative relationship and expand their customer base more aggressively. It's no different than a town with a single industry pretending to be confused if the market shifts away from that industry, when they failed in the interim to plan for any diversification and the warning stories were abundant.
Adding to that, let's keep in mind that Apple has been hiring people to work on GPU HW for years, has increasing shown interest in making their SoCs better tailored to their specific needs, and any loss ImgTech experiences will also affects Apple as they own 9.5% of the company.
Score: 1 Votes (Like | Disagree)

Top Stories

nothing ear 1 buds 1

Nothing 'Ear (1)' True Wireless Earbuds Launch to Take on AirPods Pro With ANC and Unusual Design for $99

Tuesday July 27, 2021 7:57 am PDT by
Nothing, a new brand from OnePlus founder Carl Pei, has today officially launched the "Ear (1)" true wireless earbuds after months of anticipation around the company's AirPods Pro rival. The Ear (1) features an in-ear design, Active Noise Cancelation, Bluetooth 5.2, IPX4 water resistance, and a charging case with Qi-compatible wireless charging and a USB-C port. Fast pairing is supported on...
iOS 14 on iPhone feature emergency

Apple Releases iOS and iPadOS 14.7.1 With Fix for Touch ID Apple Watch Bug

Monday July 26, 2021 9:48 am PDT by
Apple today released iOS and iPadOS 14.7.1, minor bug fix updates that come just a week after the release of iOS 14.7, software that introduced new Apple Card features and support for the MagSafe Battery Pack. The iOS and iPadOS 14.7.1 updates can be downloaded for free and the software is available on all eligible devices over-the-air in the Settings app. To access the new software, go to...
iPad mini pro feature 2

iPad Mini 6 to Feature 8.3-Inch Display With No Home Button and Narrower Bezels

Monday July 26, 2021 12:26 pm PDT by
The sixth-generation iPad mini that's in the works will have an 8.3-inch display, according to display analyst Ross Young. That will be larger than the current 7.9-inch display, with the larger size due to the removal of the Home button and a narrower bezel design. Rumors about the iPad mini 6 have been picking up in recent weeks ahead of its prospective launch this fall. Apple analyst...
iphone 12 pro gold

Report: iPhone 14 Pro Models to Feature Tough Titanium Alloy Chassis

Monday July 26, 2021 1:12 am PDT by
Next year's "iPhone 14" series is expected to feature high-end models with a new titanium alloy chassis design, claims a new investors report by JP Morgan Chase. According to the report, the use of titanium alloy will be one of the biggest changes to the case design in the 2022 iPhone series, and Foxconn will be the exclusive manufacturer of the titanium frames for the high-end models....
iOS 15 General Feature Purple

Everything New in iOS 15 Beta 4: Safari Tweaks, MagSafe Battery Pack Support, Notification Updates and More

Tuesday July 27, 2021 11:47 am PDT by
Apple today released the fourth betas of iOS 15 and iPadOS 15, introducing additional refinements to the new features that are coming in the software updates. In these betas, Apple has introduced changes for Safari, Notifications, Focus mode, and more. Safari Updates Apple is continuing to refine the design of Safari on the iPhone, and in iOS 15, there are tweaks to improve usability. ...
apple mac business page

Apple Shares 11 Reasons Why Business Users Should Choose Macs

Monday July 26, 2021 11:35 am PDT by
Apple today updated its Apple at Work website with a new section dedicated to the Mac, which offers up 11 reasons why "Mac means business." On the webpage, Apple highlights the M1 chip as the number one reason why business users should choose a Mac, offering up an M1 overview [PDF] that explains the benefits of the M1 chip. The information isn't new, but it does provide a look at all of...
imac with accessories

Larger Redesigned High-End iMac Rumored to Launch Next Year

Monday July 26, 2021 3:45 am PDT by
Apple's larger redesigned iMac will arrive sometime in 2022 rather than later this year, according to the leaker known as "Dylandkt." On Twitter, Dylandkt claimed that Apple's "high end iMac" is not expected to release in the fourth quarter of 2021 alongside Apple's "M1X Macs" – a reference to Apple's redesigned MacBook Pro models – because "Apple simply does not want their devices to...
General iOS 14

iOS 14.7.1 and macOS Big Sur 11.5.1 Patch Security Vulnerability That May Have Been Actively Exploited

Monday July 26, 2021 11:55 am PDT by
Apple today released unexpected iOS 14.7.1 and iPadOS 14.7.1 updates to the public, and according to a newly released support document, the software addresses a serious security vulnerability that may have been exploited in the wild. Apple says that an application may have been able to execute arbitrary code with kernel privileges due to a memory corruption issue. "Apple is aware of a report ...
apple bitcoin hack

Is Apple Really Buying Bitcoin?

Monday July 26, 2021 3:07 am PDT by
A large number of websites and posts on social media are stoking rumors that Apple has purchased $2.5 billion worth of bitcoin in the company's first move into cryptocurrency, but is there any validity to the claims? Many people are citing the fact that Apple was looking for a Business Development Manager with experience in alternative payments, including cryptocurrency, earlier this year as ...
new m1 chip

Tim Cook on Apple Deciding to Manufacture Components: 'We Ask Ourselves If We Can Do Something Better'

Tuesday July 27, 2021 3:04 pm PDT by
During today's earnings call for the third fiscal quarter of 2021 (second calendar quarter), Apple CEO Tim Cook was asked how Apple decides what components to purchase and what components to develop, and Cook said that Apple asks if it can be done better. We ask ourselves if we can do something better. If we can deliver a better product. If we can buy something in the market and it's great...