Imagination to Double-Down on GPU Business, MIPS and Ensigma to Be Soldby Ryan Smith on May 4, 2017 8:53 AM EST
Just over a month ago, Imagination Technologies dropped the bombshell announcement that their largest customer, Apple, would be phasing out their use of Imagination’s GPU IP in their SoC GPU designs. Specifically, Apple expects that they will no longer be using Imagination’s IP for new products in 15 to 24 months. This put Imagination in a significant pinch, as Apple is a full half of the company’s overall revenue and 69% of their GPU revenue. As a result, Imagination stands to lose the bulk of their GPU revenue starting two years down the line.
At the time the company announced that they would be engaging with Apple to discuss “potential alternative commercial arrangements” to the companies’ current agreement, and now a month later, Imagination has published a further update on that. Discussions in the last month have not made what Imagination considers satisfactory progress, and as a result they are escalating the discussion to go through the dispute resolution clause of their current contract.
Just what this will entail is unknown since the contract isn’t public, but as Imagination so delicately puts it, they’re seeking to reach an agreement with Apple “through a more structured process.” It’s unknown what will happen if this process fails, but for the moment it does not appear that a further escalation is off the table. If nothing else, Imagination will have the option of taking Apple to court for patent and IP violations once the current agreement expires. Though the company is also making it clear that they’d rather not go that far; it’s hard to imagine Imagination wants to go toe-to-toe with the most valuable company in the world, especially once their revenue takes a significant hit.
Meanwhile in Imagination’s bombshell of the month, alongside today’s Apple update, the company is also announcing that they are going to be refocusing the company to focus entirely on the GPU business. To that end, the company is putting their remaining non-GPU businesses – the MIPS CPU business and the Ensigma communications business – on the market. Imagination is not listing an expected price for either business at this time – or if they have already lined up any suitors – but the company believes that given the improved fiscal performance of these two divisions, that they are in a good position to sell the two divisions.
MIPS and Ensigma have been two of Imagination’s major efforts to diversify the company away from their original core business of GPU IP. MIPS was acquired by Imagination for
$60M $100M in 2012 – about 4.5 years ago – while Ensigma has been part of the company since the turn of the millennium. MIPS in particular has been a long-running architecture in the embedded space, and along with x86, is the other alternative CPU architecture supported by Google’s Android OS. So the news that the engineering team and product portfolio behind the #2 architecture in mobile and embedded are being sold is a major development. MIPS and Ensigma are now joining Imagination’s Pure business, which is also in the process of being sold off.
In announcing this latest sale, Imagination noted that they are doing this to strengthen their balance sheet. At the risk of reading too much into a short fiscal statement, this doesn’t sound like a move that they are making with gusto, but rather something they have to do to save the company. Selling these divisions means that the company’s efforts to diversify have failed, but given their situation, it appears that focusing on their core competency is their best bet. Still, it does risk certain efforts in the long-term, such as Imagination’s OmniShield virtualization security technology, since that was a synergy play between owning both CPU and GPU IP.
As for Imagination’s GPU business, the sale of MIPS and Ensigma means that Imagination will be transitioning to a pure-play GPU IP provider. The company continues to develop new IP here, including the recent Furian architecture, so they have products. The question that remains is how they will survive (and ideally thrive) a post-Apple world; even if the companies sign a new agreement, Imagination’s fate is going to be based on how well they can sell GPU IP to the remaining SoC vendors, particularly in the STB and Android mobile spaces. With all other businesses in the process of being sold, the fate of Imagination’s GPU business will determine the fate of Imagination itself.
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skiboysteve - Thursday, May 4, 2017 - linkSad
Sarah Terra - Thursday, May 4, 2017 - linkI'd say smart. If they sell these companies now while the firm is healthy they can get market value, instead of fire sale prices when the firm is dying, but to be frank imagination is done and I don't see them coming back from this. I'm sure there are greedy investors already taking steps to put the squeeze on imagination to weaken thier selling position with an ultimate goal of picking up the company and its IP for as cheap as possible. Suing Apple will be the return on this investment
Meteor2 - Friday, May 5, 2017 - link...which is why it's sad :(. Assuming MIPS was profitable, it's selling the family silver.
Computer Bottleneck - Friday, May 5, 2017 - linkHow about Imagination making low profile single slot display and media cards for surplus desktops or desktops that don't come with iGPU?
HomeworldFound - Friday, May 5, 2017 - linkThat's not a solution at all. Suicide.
erwos - Monday, May 8, 2017 - linkYou mean like Matrox used to do? They'd be better off just selling their GPU assets and returning the money to the investors.
Speedfriend - Thursday, May 4, 2017 - linkRule number 1 in business - don't be an Apple supplier, the greedy bastards will screw you at some point, no matter how big you are....
jordanclock - Thursday, May 4, 2017 - linkReally? Rule #1 for business is don't be a supplier for one of the largest companies in the world?
beginner99 - Thursday, May 4, 2017 - linkHe has a point. The more important one being: Never make your company depend on 1 single customer. Any such deal must be declined. If you found your own business, you get 1 big contract from a largish company and then they can just fuck you over by not paying because you can't do anything against it as you will be bankrupt and can't afford a lawyer.
That is whats happening here just on a much larger scale. Asshole move by apple but it will play out. They will either buy them for cheap or just go to court and wait till they are bankrupt and buy them even cheaper. Imagination can't do anything about this and their won't be magic new business saving them.
melgross - Thursday, May 4, 2017 - linkThe fact is that Apple has one of the largest R&D centers in the world. We all know they been developing chips for 30 years. It's not as though this is all new to them. And with Apple developing more chips as time goes on, this shouldn't be unexpected.
They bought at least two GPU design firms over the years, and have a fair number of graphics patents they've developed themselves. So again, this shouldn't be unexpected. And with them developing more of the graphics engines themselves, Imagination should have realized that Apple was moving further away over the past two or three years. They have no one to blame other than themselves.
It's also interesting that they are doing the exact opposite of what they attempted to do when buying MIPS, though they own none of these patents, but license them. So while trying to diversify, partly because Apple had such a large part of their business, and because they largely failed to get another customer base for it, they found it harder than they thought.
So now they're doing what a lot of other companies did before they failed. Sell off their acquisitions. They SAY they are doing ok, so there is value there. But this really makes little sense to me. If they are doing ok, and they will be losing 69% of their graphics business, then really, what will they have left?
Do they actually think that Apple leaving them is going to be a sign to others that this is a good time to use their IP? Somehow, I don't think so. Since licensing their graphic IP has failed, other than to Apple, where will they be going from here without diversification?
I've seen all of this a number of times before. It always ends in failure.
So another thought. Imagination had put themselves on the block, effectively, last year, mostly hoping Apple would bite, but they didn't. I imagine that part of the reason was because Apple was already planning to leave. But also partly because Imagination had business that Apple didn't want, such as MIPS, etc. Those are the parts Imagination is now parting with.
So perhaps this is another attempt by them to get Apple interested in buying them at a lower price, without the business apple wouldn't want, and with some cash. Clever, if it works, because I just don't see them surviving Apple's loss.
And really folks, this isn't an unfair move by Apple. All companies need to do what's best for them, and not for anyone else. It's even possible that some day, they will move away from ARM as well.