Imagination Technologies Share Discussion Threads

[borromini1] 12/4/2017 02:10

Rob_Evans - OK this notion, raised by the two articles, of Imagination running out of money is important and needs addressing, lets start by answering this important hypothetical question ...

If all Apple revenue is excluded what replacement revenue does Imagination need to generate to cover or break even on all costs related to continuing the PowerVR team at full strength with no cost reductions whatsoever?

Imagination Half Year Results released 6 Dec 2016 for H1 2017 (May 2016 to October 2016)
Revenue for PowerVR = £43.3m
Apple revenue = £31.4m
Apple % of PowerVR revenue = 73% (31.4/43.3)
Non-Apple Power VR revenue = £11.9m
Non-Apple % of PowerVR revenue = 27% (11.9/43.3)

Half Year Costs for PowerVR = £26.9m
R&D = £16.4m
Adjusted SG&A = £10.5m

Increase in PowerVR revenue needed to cover costs if no Apple revenue received and other non Apple revenue continues at the same level = £15m (26.9-11.9)

So the next question is how can Imagination achieve a PowerVR revenue increase of £15m and is anything happening soon?

Answer: Yes, how about 27244 MediaTek Helio X30 phones start delivering royalties to IMG from this month.

What level of MediaTek sales are required for PowerVR to cover costs?
£15m divided by royalty rate of 20p per device (anyone with a more accurate rate figure?) would require 75 million smartphones every six months or 150 million per year.

This and more seems entirely achievable within the 15 months to 2 years before and if Apple start to reduce their royalty payments.

The H1 2017 financial results seem to show that Imagination is in a stronger position than portrayed by some commentators.
We know from the Analysts Conference Call of 3 April that the net debt position has already much improved for H2 2017 ending 30 April 2017.

Imagination are not going to run out of money anytime soon.
Imagination can likely continue PowerVR research and development at full tilt for years to come.
Imagination's excellent PowerVR team of 800 people need to stay strong during turbulent times, recent events reflect the pivotal nature of their combined efforts and in no way diminish the importance of their work, in fact the opposite.

[rob_evans] 11/4/2017 20:29

From

Without Apple Inc., Imagination Technologies' PowerVR Has No Future

It might be game over for Imagination's PowerVR now that a key customer is abandoning the tech.

Ashraf Eassa (TMFChipFool) Apr 10, 2017 at 3:00PM

At this point, anybody with even a cursory interest in technology stocks has probably heard that Apple (NASDAQ:AAPL) recently informed graphics specialist Imagination Technologies (NASDAQOTH:IGNMF) that it would no longer need to use its graphics intellectual property in future mobile applications processors.

For those unfamiliar with Imagination, it is a small silicon intellectual property vendor that produces graphics and processor core that it licenses to companies that design and build their own chips. Imagination typically receives an up-front licensing fee for its intellectual property coupled with ongoing royalties for each chip containing its intellectual property sold.

Imagination has historically depended heavily on Apple for the bulk of its revenue (just over 50% in fiscal year 2016). However, it's worth observing that this figure understates just how important Apple was to Imagination's PowerVR graphics business.

Digging into the numbers

In fiscal year 2016, Imagination reported that total revenue from what it defines as "continuing operations" came in at 120 million pounds (about $149 million).

Of that revenue, 17.1 million pounds (about $21 million) of it came from licensing revenue while 102.7 million pounds (about $128 million) came from royalty revenue.

Now, it's also worth noting that Imagination doesn't just sell graphics intellectual property. Several years back, Imagination bought MIPS Technologies in 2012 for $60 million. This acquisition added CPU intellectual properties to Imagination's portfolio, and it has been licensing MIPS processor technology since.

According to Imagination's annual report, the company enjoyed 6.44 million pounds ($8 million) in MIPS licensing revenue and 23.47 million pounds (approx. $30 million) in MIPS royalty revenue in its most recent fiscal year. PowerVR licensing was 10.16 million pounds (about $12.62 million) and royalty revenues were 77.7 million pounds (roughly $96.5 million).

In Imagination's disclosure vis-a-vis Apple, the former said that in fiscal year 2016, PowerVR licensing and royalties from Apple totaled 60.7 million pounds (about $76 million) in revenue.

Apple doesn't license Imagination's MIPS processor cores for its chips; its interest in Imagination's portfolio is solely in its PowerVR portfolio. What this means, then, is that Apple made up nearly 70% of Imagination's PowerVR graphics revenue in the company's prior fiscal year.

Without Apple, PowerVR has no future

If Imagination can't work out some sort of serious technology/patent licensing arrangement with Apple, then it is extremely unlikely that the former will be able to continue to fund the development of its PowerVR graphics technology.

Of course, there's the possibility that Imagination could find new, large customers for its technology, but that's not going to be easy. With Apple out of the picture, that's roughly 15% of the total addressable market in smartphones gone.

Furthermore, Qualcomm (NASDAQ:QCOM) is the largest smartphone applications processor vendor, capturing about 42% market share in 2015, per Strategy Analytics (2016 numbers should be a bit different, but you get the gist). Qualcomm builds its own graphics processors and is therefore not a potential customer of Imagination's graphics tech.

We're already at half of the mobile applications processor market out of Imagination's reach.

Companies like Spreadtrum, MediaTek, Huawei, Samsung (NASDAQOTH:SSNLF), and Xiaomi (merchant vendors as well as smartphone companies that build their own mobile processors) could be reasonable targets for Imagination's PowerVR tech, but these companies have been largely using graphics technology from ARM Holdings.

It's going to be hard for Imagination to capture share from ARM Holdings going forward for several reasons. The first is that Imagination couldn't beat ARM here even with technology that was arguably much superior; ARM's graphics technology has gotten much better over the years and should only get better with time as ARM has the wherewithal to invest much more in such technologies than Imagination can.

Even stripping away the technology argument, Imagination's future -- now that Apple is about to walk out the door -- is now uncertain. ARM's future, on the other hand, is rather certain (and quite bright). On that basis alone, it will be hard for Imagination to keep its existing non-Apple customers, let alone wrest away share from ARM.

The point is this: Without Apple, Imagination's PowerVR technology likely has no future in Imagination's hands.

[rob_evans] 11/4/2017 20:28

From

Imagination debt fears after Apple blow

Imagination Technologies is facing a credit crunch over a $23m loan secured against its head office, as it faces up to a crushing blow dealt last week by Apple.

The British chip designer has been thrown into turmoil after Apple said it would stop using its microchip blueprints within two years.

The US tech giant pays Imagination £65m a year to use its graphics processing patent in iPhones and iPads — roughly equivalent to half the Hertfordshire company’s revenue. It lost nearly two thirds of its value last week after Apple said it would use its own graphics technology in “15 months to two years”.

Separately, questions are emerging over a $23m (£19m) loan that is due to be repaid next June. Imagination’s finances were already strained after it struggled with a downturn in smartphone sales. Last year it breached the terms of a loan with HSBC.

City sources said the company could struggle to roll over the debt without having to pay a substantially higher rate of interest. It has put up its £55m headquarters in Kings Langley as security.

[rbalakrishnan] 11/4/2017 16:12

More evidence perhaps that Apple wants to do it all in-house.

[tsmith2] 11/4/2017 12:58

Yes, quite encouraging. Let's see if we get run up..

[mister md] 11/4/2017 12:35

Some good volumes going through. Will be interesting to see if we get any Holdings RNS over next few days

[tsmith2] 11/4/2017 10:24

Volume burst..

[csmwssk12hu] 11/4/2017 10:24

Can see Apple just offering £1.70 to £2 to get hands on technology legally aswell as revenue from other users, saves the legal costs and battles and is quicker and easier for them, they already have 8% stake and guarantees supply in the wider scheme of things the cost of these is not relevant to Apple, the drag of a legal battle is just something management won't want hassle of not shareholders

[csmwssk12hu] 11/4/2017 10:18

That spike is out of character tells me something about to happen, seen same thing with punch taverns

[mister md] 11/4/2017 10:15

Bit of movement ... Really hoping that the shareprice has bottomed out for now

[colsmith] 11/4/2017 09:23

Interesting legal battle APPPLE - Qualcomm, 2nd para and the extract below suggests APPLE is facing competitive pressures and using some interesting activities to do something to defend their position and expensive phone sales. I wonder if IMG are in an indirect way involved with their (it seems) need to reduce cost of their products.

Maybe all a bit boring but the smoke signals suggest APPLE are seeing others are chasing their market.



----------------------------------
EXTRACTS
Qualcomm general counsel Don Rosenberg said his company believes Apple's suit was motivated by a need to reduce the cost of making iPhones. Qualcomm's licensing business "is a nice target for them to pursue to get that input cost lower. That's really what this is about," he said in an interview.

The stakes for both Apple and Qualcomm are high. Apple, facing competitive pressure from Chinese smartphone makers and others, would benefit from reducing costs. Qualcomm, meanwhile, gets most of its pretax profit from licensing its intellectual property.

[borromini1] 11/4/2017 00:56

MediaTek Helio X30 phones start delivering royalties to IMG from this month.

Elephone Z1 Phone features the next-Gen Helio X30 SoC made with 10nm FinFET technology and Dual-curved AMOLED display and 3D glass body, supported by RAM 8GB and Internal Storage 256GB. Size 5.7" Ultra Narrow, Resolution 1920 x 1080 pixels.

£152.72 reduced from £321.60 available to order from mid-April.

hxxp://www.elephonestore.com/elephone-z1-ram-8gb-dual-curved-display-phone.html

[borromini1] 10/4/2017 19:19

Sheep_Herder - apologies, the agree bit was hopefully working towards a concensus that the dual approach could be applicable in this case and such an industry precedent involving others had occurred.

My point (or assumption) was that Apple have already got a Furian licence, have received initial RTL, are maybe still working on the basis that they could end up relying on it in new product and have not explicitly cancelled the current licence and royalty agreement.

[ebomber] 10/4/2017 16:12

Maybe Apple have adopted this tactic (APPLE is of the view...........) approach as a simple negotiating position to get licence cost down. It has worked on the IMG share price?

[grity] 10/4/2017 15:24

Tuff decision but just sold all my
Img , hopefully won't live to regret it

[sheep_herder] 10/4/2017 13:21

borromini, sorry, I wasn't referring to Apple. I was referring to someone taking both an IMG and ARM license. Just trying to highlight that someone signing a license doesn't mean any further revenue will automatically be guaranteed.

[colsmith] 10/4/2017 12:45

CAR - not made things clear; all they said was -"APPLE is of the view--" whatever that means! Anyhow IMG had to issue an RNS; however for APPLE its not obvious this has any share price relationship - they either stick with IMG or do their own thing, would either of those situations have affected the sales of their expensive products - more risk from lower priced stuff that does the same thing I suggest. And another strange thing - why talk about possible takeover and then walk away.

Anyhow unless they have a fundamentally different approach to GPU processing its reasonable to assume they have a problem with patents and some evidence to that is that "APPLE take ---"!

[borromini1] 10/4/2017 12:40

Sheep_Herder - I certainly feel like I'm clutching at straws. On Furian you have answered multiple questions, I agree it could make a lot of commercial sense for Apple to reduce risk by taking a dual licence approach followed by dual product tape out before deciding which to use. That could be the best scenario IMG could hope for. The best SOC at the best timing gets into the socket in the product. Apple would need the personnel to resource that approach and it could energise IMG to excel, it seems eminently sensible and constructive for both sides. Apple have a timing issue with getting Furian into products by Apple WWDC in June 2018, and with the all Apple GPU they have a team building challenge, as you have mentioned, and potential risks of a first implementation by that new team and its timing.

Hopefully the above senario or something similar is being seriously considered as part of the ongoing discussions between Apple and Imagination.

[rbalakrishnan] 10/4/2017 12:40

More details on the recent job postings relating to Apple's London UK Design Centre in what the ads describe as a "newly formed graphics team".

[jamesrowe] 10/4/2017 11:27

By saying this now Apple are encouraging IMG staff to defect to them.

[caradog] 10/4/2017 10:51

Apple could not have made things clearer. They decided against making an offer a year ago, have poached key people, and now they have stated clearly that they will not need IMG intellectual property in future.

If Apple had informed IMG privately, anyone at Apple or IMG selling shares could have been exposed to accusations of insider trading. Apple would have had to make a statement anyway if they had sold down their holding as there would inevitably have been a market reaction. I expect their reputation is worth more to them than the hit they will take on their IMG shares.

[colsmith] 10/4/2017 09:52

BORRO re 27221 - interesting analysis thanks. I'm still intrigued as to what APPPLE said " "Apple is of a view" A strange wording in that one could infer that they aren't sure of the patent issue yet, or its part of some unclear commercial poker play so to speak. Anyhow I would have thought that if the road was clear they would have said "We wont be using IMG etc"

Clearly IMG had to issue an RNS but I don't see why APPLE had to declare themselves because there isn't any obvious share price related issue for them; so why not just keep silent and tell IMG when they have there own product - if that is their intention.

The only practical point is that at this time they can't or wont (for some reason) say they WILL not be using IMG!

[borromini1] 10/4/2017 01:50

IMG PowerVR team headcount currently stands at about 800 people. Total IMG headcount 1200 people. Figures from Analyst Conference Call last Monday.
12 new Apple vacancies equates to 1.5% of PowerVR team. Apple currently listing 114 vacancies globally under keyword GPU. 3 software and 10 hardware vacancies in London listed between 24 March and 5 April with 2 hardware vacancies not filled since December 2016. Sheep_Herder can you cast your expert eye over the job specs and report back on what these requested capabilities represent, i.e. In your opinion are they all definitely about Apple not using IMG IP or are they potentially compatible and complimentary to utilising PowerVR Furian IP?

[alexander_james] 10/4/2017 00:54

Sheepy_h, do you think you could dial down your ill-disguised glee at IMG's failure? We know you you're ex-ARM, we know you have knowledge the rest of us don't. You were right. We get it, no need to twist the knife. Rob was also right with his circumspection too, nothing but rational thought behind it. In the end it's all to the loss of the country and the wider U.K. industry that IMG are now circling the drain. Hardly something to be happy about, investor or not.

I've been investing in IMG since the mid 90s, and one thing is clear, IMG never ceases to amaze in its ability to provide multiple opportunities for people to make or lose huge sums of money. And the train keeps rolling..

It's really not a good situation, especially for all the good people at IMG and their families and dependents.

And where's JJ after all this time?