UK graphics chip designer Imagination Technologies has opened an official dispute with Apple after the iPhone maker revealed it wants to ditch Imagination and start designing its own chips.
The Hertfordshire-based company announced on Thursday that it had “commenced the dispute resolution procedure” and that it hoped to form a new deal with Apple when the existing one terminates in 2018/19. Imagination did not specify exactly what the procedure involves but it’s safe to assume that it’s some form of formal arbitration where both companies try and come to an agreement.
Imagination also announced on Thursday that it intends to sell two of its three core business units in a bid to strengthen the company’s balance sheet.
“Imagination Technologies has commenced a dispute resolution procedure with Apple Inc. (“Apple”) and announces that it intends to sell its MIPS and Ensigma businesses,” the company wrote in a trading update for the year to 30 April 2017.
It added: “While the Group has continued to invest in its MIPS and Ensigma businesses, it has now decided to actively market these businesses for sale, concentrate its resources on PowerVR and strengthen Imagination’s balance sheet.”
Last month, Imagination said it didn’t know how Apple will make devices in the future without violating intellectual property laws.
“Apple has not presented any evidence to substantiate its assertion that it will no longer require Imagination’s technology, without violating Imagination’s patents, intellectual property, and confidential information,” the company said. “This evidence has been requested by Imagination but Apple has declined to provide it.”
In the update provided on Thursday, Imagination 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. Imagination has reserved all its rights in respect of Apple’s unauthorised use of Imagination’s confidential information and Imagination’s intellectual property rights.”
Imagination’s partnership with Apple goes back nearly 10 years. Imagination products have been part of all of Apple’s mobile devices — iPhones, iPads, and iPods — since 2008.
Apple, which owns a 9.5% stake in Imagination, uses Imagination’s graphics processing unit chip designs under a licensing agreement worth tens of millions of pounds to Imagination every year.
Apple’s decision to ditch Imagination is a huge blow for the company — a UK tech icon with revenue of more than £120 million ($149.4 million) in the year leading up to April 2016.
On the day that Apple announced it plans to stop working with Imagination, which employs roughly 1,700 people, the company saw its market value drop by more than 75%.
“In the worst case, survival, let alone value, is in question,” Jefferies equity analyst Ken Rumph said in a note to investors at the time of the breakup. Rumph added that the breakup was likely to dent Imagination’s profits by £65 million a year.