The highly competitive chip market took another turn today when U.K.-based Imagination Technologies announced that Apple plans to phase out the use of that company's multimedia processors over the next 15 to 24 months. With Apple accounting for around half of Imagination's revenues, the news caused the company's shares to drop dramatically in trading this morning.
In a statement published today on its Web site, Imagination said Apple has been working on its own graphics processing technologies with the goal of replacing Imagination's chips in its products. Apple has used Imagination's system-on-a-chip (SoC) technology in its iPhones, iPods, iPads, and other devices for many years.
Imagination said in its statement that it "does not accept" Apple's claims to have developed new graphics processor unit (GPU) technologies without infringing on Imagination's own intellectual property. Noting that it reserves the right to challenge any unauthorized uses of its technology, Imagination added that it plans to release a further announcement about the matter "in due course."
Apple did not immediately respond to our request for comment.
Competitive Complaints in Chip Industry
Recent advances in chipmaking processes, and the growing presence of processors in a wide range of Internet-of-Things, virtual-reality and augmented-reality devices, have helped fuel growing competition in the CPU (central processing unit) and GPU markets. The technology's use can also lead to disputes between chip manufacturers and product companies that must pay those manufacturers licensing fees.
In January, for instance, the Federal Trade Commission filed a complaint accusing chipmaker Qualcomm of unfair and uncompetitive business practices by forcing Apple into an exclusive arrangement to use its broadband processors. Qualcomm faces similar allegations in South Korea and Europe.
"Apple's notification has led Imagination to discuss with Apple potential alternative commercial arrangements for the current license and royalty agreement," Imagination said in its statement. "Imagination has reserved all its rights in respect of Apple's unauthorized use of Imagination's confidential information and Imagination's intellectual property rights."
Apple's 'Silicon Strategy'?
Complicating the current matter between Imagination and Apple is that fact that Apple is part owner of the British company and holds about 8.5 percent of Imagination's shares.
That raises the possibility that Apple's current threat to stop using Imagination's chips might be a bargaining strategy to lower its licensing fees to the company. It also increases the chances of another company making an offer to acquire Imagination, according to Patrick Moorhead, founder, president and principal analyst at Moor Insights & Strategy.
"Appears Apple has a silicon strategy to control *and* lower its overall cost," Moorhead said on Twitter earlier this morning. "Qualcomm relates to this too. Apple volumes, diff position."
Moorhead followed up that tweet with another saying, "Expect Samsung, Qualcomm, Google maybe even Microsoft and Intel to make a play for Imagination."
He added that the current situation underscores why it can be risky for a technology company to rely heavily on a single customer for its business. "Imagination a good example of why you need a more balanced revenue customer set," Moorhead said. "The ride up is great, the fall down is tragic."