Imagination Technologies launches formal dispute against Apple
British chip maker Imagination Technologies has launched a formal dispute against Apple just a month after the iPhone maker said it would scrap royalty and licence agreements that make up half of the UK firm's revenues.
The company is concerned Apple's plans to replace Imagination's intellectual property - used in the graphics processor units for Apple's phones, tablets, iPods and TVs - with its own technology within the next two year risks violating the British company's patents.
The move would also mean Imagination would not be eligible for Apple's royalty payments and licence fees, which brought in £60.7 million in revenues in the year to April 30.
That accounted for half of the £120 million made in group revenue from continuing operations for the last financial year.
Imagination said in a trading update that while it had proposed "alternative" commercial arrangements with Apple, the two companies failed to reach a deal.
It said: "Imagination has been unable to make satisfactory progress with Apple to date regarding alternative commercial arrangements for the current licence and royalty agreement.
"Imagination has therefore commenced the dispute resolution procedure under the licence agreement with a view to reaching an agreement through a more structured process."
The loss of its biggest customer came as a bitter blow last month and follows on from a tumultuous 2016.
Imagination posted a £61.5 million loss last year - the biggest in its history - and also embarked on a cost-cutting drive which saw 200 jobs axed.
Imagination shares collapsed when Apple first revealed it would phase out its use of the firm's technology, sending stock prices down more than 60% in the first week of April.
Its London-listed shares were up 2.3% on Thursday after releasing its trading update, which also outlined plans to sell its MIPS and Ensigma businesses - which are focused on embedded processing and IP licensing.
Imagination said it will instead be concentrating its resources on its PowerVR business and "strengthening Imagination's balance sheet".
Oliver Knott, an equity analyst at N+1 Singer, said Imagination was not in a strong selling position.
He said: "The sale of MIPS and Ensigma is a logical step to free up available resources for the group to concentrate on its primary asset, PowerVR.
"Both assets up for sale are loss-making assets and Imagination is not selling from a position of strength."
He added that an acceptable resolution with Apple is "far from certain", which puts Imagination Technologies in a "very difficult position".
He said: "It is unclear how the dispute resolution process will move the conversation on, but it is a necessary step before the group can take any further action.
"There is no guarantee the group will commence full legal action, which would be very costly."