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It was in the cards anyway, but now it's official. And the impact, unsurprisingly, is heavy.
(reuters) Shares in Imagination Tech (IMG.L) crashed more than 70 percent on Monday after the British company said its biggest customer, Apple (AAPL.O), would stop using its graphics technology in iPhones, iPads and Apple Watches. Imagination said Apple, which accounts for about half its revenue, had notified the British firm it was developing its own graphics chips and would no longer use Imagination's processing designs in 15 months to two years time. Shares in Imagination, in which Apple holds an 8 percent stake, plunged to 76 pence, their lowest level since 2009 and about a 10th of their record of 734 pence hit in 2012.
Imagination Tech would probably make a good acquisition candidate for a company interested in IP. Their management is probably right in saying it would be hard for Apple to build it's own mobile graphic core without violating some of their intellectual property, and lets not forget they also own MIPS.
Any public company that has one customer provide over 10% of its revenue is susceptible to downward stock price when that sole customer leaves. Apple's investment in Imagination Technology also took the same percentage hit today. It does make sense for Apple to own more of the semiconductor IP in each of their highest volume products, unless that IP is a commodity and can be purchased for less cost and time than doing an internal development.
Worst case, Apple comes out with their own next generation GPU and it underperforms the previous generation from Imagination Technology, so Apple looks inept at GPU design, kind of like when Apple insisted on replacing Google Maps with their own technology and it was woefully inadequate. The press will chuckle, and users will complain when their favorite feature works poorly, but somehow the Apple brand and customer loyalty is so high that these technology replacements rarely slow down sales and profits at Apple. Another good reason to own AAPL shares, which I do.
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Worst case, Apple comes out with their own next generation GPU and it underperforms the previous generation from Imagination Technology, so Apple looks inept at GPU design, kind of like when Apple insisted on replacing Google Maps with their own technology and it was woefully inadequate. The press will chuckle, and users will complain when their favorite feature works poorly, but somehow the Apple brand and customer loyalty is so high that these technology replacements rarely slow down sales and profits at Apple. Another good reason to own AAPL shares, which I do.
Also worth remembering that a system provider doesn't have to provide best-in-class components (unlike semis) as a part of their solution. They just have to be, as Daniel points out, good enough to retain a leading position in the overall solution. Would I drop iPhone because (until recently) they didn't support wireless charging? Of course not. Would I drop them because video or gaming quality was a little less great than through IMG? Again of course not unless I am a serious gaming fan (in which case I'm probably not doing it on my phone anyway). Too many "ok" components will eventually accelerate desertion, but we're not there yet.
GPU designers can also come up with an architecture that wins a popular benchmark test, yet isn't really something that a user would discern while doing typical everyday tasks like web browsing, phone calls, texting, using Facebook, tweeting or watching video clips.
