Apple Hits Back at Supplier Imagination for 'Inaccurate and Misleading' Statements in Contract Dispute

Apple today hit back at disgruntled chipmaker Imagination Technologies for questioning whether it can develop new graphics technology without using the supplier's intellectual property, calling the British firm's response to Apple's decision to part ways with it "disappointing, inaccurate, and misleading."

Back in April, Imagination Technologies announced that Apple had told the U.K. firm it planned to stop using its graphics processors in consumer devices over the next two years. The news came as a shock to investors and the company's shares fell by 60 percent on the day.

imagination technologies logo
At the same time, the company criticized Apple, claiming that it doubted the tech giant could go it alone without violating Imagination's patents, intellectual property, and confidential information. One month later, the company opened a "dispute resolution procedure" with Apple after failing to resolve the disagreement.

On Friday, Apple responded to the graphics chip supplier by claiming that the firm had known for nearly two years that it was winding down the relationship. In an email statement received by Bloomberg, Apple said it first informed Imagination in late 2015 that it would no longer be buying the U.K. company's latest technology, but that it would still use its older systems.

Apple claimed that it told Imagination in 2016 that it was further reducing the relationship by initiating a clause in its contract that allows Apple to pay a lower royalty rate for using a smaller amount of intellectual property. By February 2017, Apple said it had told Imagination it was ending the relationship altogether and would no longer be making any royalty payments in up to two years' time.

Apple's statement contradicts those made by Imagination, notes Bloomberg. Last week, Imagination CEO Andrew Heath said the company was informed by Apple at the end of March "that they were certain" that products to be released in 2018 or early 2019 will no longer use Imagination's intellectual property. But Apple claimed the firm had known for longer.

"We began working with Imagination in 2007 and stopped accepting new IP from them in 2015," Apple said. "After lengthy discussions we advised them on February 9 that we expected to wind down our licensing agreement since we need unique and differentiating IP for our products. We valued our past relationship and wanted to give them as much notice as possible to adapt their future plans."

Imagination has yet to comment on Apple's statement, but the supplier's shares fell by up to 8 percent on Friday U.K. trading.

News that Apple would no longer be relying on its processors delivered a major blow to Imagination Technologies, which traditionally provides the PowerVR graphics architecture found in Apple's full range of iOS devices and receives a small royalty on every sale, which amounts to up to half of the British firm's revenue.

The company put itself up for sale in June. The formal sale process is still ongoing, despite a successful restructuring and a return to profitability for the company. Apple is unlikely to make an offer, according to a person familiar with the matter who spoke to Bloomberg.

Top Rated Comments

Quu Avatar
63 months ago
Why most companies wind up overacting against Apple?
Apple is the kind of company that only uses you long enough to learn how your technology works and then once they devise a way to get around your patents, shut you out and replicate the functionality of your solution. Alternatively they just buy you. Like they did with Siri, TouchID and so on.

EDIT:// I can see I rattled a lot of cages with this comment. Many of you replying are saying things like "welcome to capitalism" and "that's what every company does". And to that I say, well duh, that's what I just explained with my comment, it's the entire reason imagination is salty.
Score: 28 Votes (Like | Disagree)
Kaibelf Avatar
63 months ago
This is a situation where both parties are probably in the right.

1) I think that Apple felt obligated to give Imagination fair notice that they were planning to pull the rug out from under their feet, so that Imagination wouldn't feel like the rug was being pulled out from under their feet.

2) Nevertheless, the rug was pulled out from under Imagination's feet. The notice itself resulted in financial collapse. From their standpoint, they think their IP is so strong that they'll discover Apple still owes them licensing fees for whatever tech it eventually unveils. Maybe they'll be right and maybe they'll be wrong. But the problem for them is that's all in the future. Right now, those products only exist in the form of a warning that they WILL exist. And really, I think that the recent statements made by Imagination were very truthful and correct from their standpoint. They really have been putting their ducks in order and improving their business, and it's no doubt frustrating to them that they can't even verify whether or not Apple will or won't infringe their IP.

3) But this last statement by Apple is problematic for me. I seems churlish. In trying to defend itself, Apple is showing a complete lack of balance. They're saying "we totally did the right thing and those guys are lying"... but really what's happening is that the Apple statement just wants to ignore the damaging impact its warning had. Apple needs to have acknowledged the unfortunate results of their initial warning but then added that said warning was the right thing to do, in order to prepare a company whose business they valued, adding that a last minute surprise would have been worse. Then they could say they regretted the unpredictable and unforgiving nature of the market.
1. It'a not "pulling the rug out from under their feet" to simply change their supply chain (with PLENTY of notice). The entire concept of pulling a rug out from someone is that you surprise them without any warning. Are you "pulling the rug out from under the feet" of the servers at a restaurant if you find a different one you prefer and start going there instead? Do you somehow owe them lifetime business patronage?

2. I don't know what the value of my 401(k) will be in 5 years either. Should I be throwing a fit because I am not being informed? Imagination is crying about pure speculation with nothing to back it up, and the idea that Apple should clue them in to their internal trade secrets as they exit doing business with them is, at best, laughable.

3. So Imagination makes a series of accusations, then a series of threats, then complains to the press about how they are somehow victims because their gravy train is ending after being fattened up for a decade unnaturally and failing to diversify with that opportunity, and when Apple finally responds by saying that IT aren't being honest, somehow it's "churlish" and "lacking balance?" I'm not sure if you work for Imagination or some relative of yours does or something, but in the real world, people change vendors all the time, and in business, much like in life, no one owes you anything forever. Apple signed a deal, everyone made money, and then the deal ended, and they are moving on. I'm sorry that Imagination was too lazy and incompetent to get their house in order and idiotically assumed that their business would last forever, but that's frankly not Apple's problem, and last I checked Apple, and all corporations, are not there to serve as soup kitchens.
Score: 12 Votes (Like | Disagree)
gnasher729 Avatar
63 months ago
Speaking from a position of complete ignorance and lack of understanding here, why did this company make this dramatic announcement that ended up shocking investors and hurting their share value? That decision seems counter to their interests.

Is there a larger strategic advantage to such an announcement that I'm overlooking? Was it required by law?
The share value is hurt because Apple will stop buying chips from them. That can't be kept a secret. There sales numbers in 2019 will be down. I don't know about the UK laws; if it was a US company they would have to tell investors, but people would have found out anyway.

In the end, they are much better off as if Apple had never been a customer. Share price was low in 2007 and went up due to the Apple deal. Now its 2017 and the share price went down due to the end of the deal. In the meantime, the company made loads of money.
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There must be something going on at Apple for them to suddenly screw over or not pay their core suppliers for GPU (Imagination), radio baseband (Qualcomm), power management (Dialogic), etc.
There is one thing going on at Apple: They developed their own graphics chips, they have plenty of hardware engineers to do that, and they are not suddenly screwing over Imagination; they told them two years ago that they won't need Imagination's IP anymore, so they won't be paying anymore.

Apple isn't screwing over Qualcomm. Qualcomm have been screwing over Apple for a while, and Apple had enough of it. Qualcomm has also been screwing over Samsung for a while, and Samsung had enough of it as well.
Score: 11 Votes (Like | Disagree)
mi7chy Avatar
63 months ago
There must be something going on at Apple for them to suddenly screw over or not pay their core suppliers for GPU (Imagination), radio baseband (Qualcomm), power management (Dialog), etc.
Score: 10 Votes (Like | Disagree)
Kaibelf Avatar
63 months ago
I guess it is required to inform shareholders about this sort of things.
Maybe they postponed the announcement as long as they could, but eventually they had to make it public.
They didn’t just inform shareholders. They also accused Apple of some kind of theft and demanded to know how they could possibly use another solution. It came across as desperate and juvenile, like a post-breakup post on Facebook by an angry middle school girl.
Score: 8 Votes (Like | Disagree)
morcutt11 Avatar
63 months ago
As a business owner I can tell you that anytime a majority your revenue is driven by just one or two customers, you're going to eventually have a problem. It was on Imagination to grow their business beyond Apple and that didn't happen. As for Apple using companies products/IP and eventually dumping them, why wouldn't they? When Apple initially launched the iPhone, they had no intellectual capital or IP for a vast majority of the technologies used by the phone. As such they pay royalties everywhere as everyone wants a piece of the action. Over they years, Apple has developed its own technology and evolved it to the ever-changing needs of their product. As such it is natural that they would eventually move away from some suppliers, pulling some work in-house. Additionally, it isn't surprising to see new suppliers come on board as a result of the technology evolution and changing needs of the iPhone platform.
Score: 7 Votes (Like | Disagree)

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