As of last Friday’s close, Imagination Technologies — the semiconductor company responsible for the striking graphics of Apple Inc.’s (NASDAQ:AAPL) phones, tablets and watches — was worth more than $270 per share. Flash forward not even a week, and shares of the London-based tech company are barely hanging onto triple digits.
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As you perhaps guessed, Apple is indeed to blame.
In most mobile devices, graphics processing is integrated within something that’s called a “system on a chip” application processor. Semiconductor companies like Advanced Micro Devices, Inc. (NASDAQ:AMD), Intel Corporation (NASDAQ:INTC), Nvidia Corporation (NASDAQ:NVDA) and Qualcomm, Inc. (NASDAQ:QCOM) own the designs for both the graphics components and computing components of such chips.
Apple, on the other hand, own most of its SoCs, from the Ax series in your iPhone to the Sx series in your Apple Watch. But for its phones, tablets and TV, Apple buys the intellectual property for the GPU from Imagination Technologies — or at least it used it. Now, Tim Cook & Co. have decided they want to make and own their own GPUs for all mobile devices.
Apple was once considering buying Imagination Technologies to this end, but has simply announced abandonment instead. Hence, the plummet for Imagination, which gets over half its revenue from the iPhone king.
Naturally, Imagination Technologies is a little upset and has already more than hinted this news is fertile ground for a lawsuit.
“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. This evidence has been requested by Imagination but Apple has declined to provide it,” it said in a statement.
But a lawsuit between Apple and Imagination Technologies is a David-and-Goliath battle if I’ve ever seen one. Apple (like most tech companies) is no stranger to such conflicts and has plenty of cash to settle and move on.
Meanwhile, the desire to control the IP for its GPU is more than logical considering graphics are the key to everything from machine learning to augmented reality. This is especially true, as Wired noted, because Apple is playing catch-up in those areas.
How Will This Affect NVDA, AMD and Others?
While this news makes sense for Apple and is deadly for Imagination Technologies, it impacts other companies in the booming GPU market as well.
Imagination Technologies doesn’t provide the GPU for Apple’s MacBooks, for example — Nvidia was the sole provider for some time, while AMD snuck in more recently. It seems highly likely that Apple’s trend of taking things in-house will continue, and that the company will make its own graphics for the Mac as well — especially considering a refresh of the Pro is on tap.
Considering the rocket gains of both companies in recent years, one could speculate that competition from Apple could serve as the catalyst for a cool-off.
But the mobile device market — which includes not just phones but watches and tablets — is growing so dramatically, I don’t foresee a problem. As long as you’re betting on an undiversified supplier of intellectual property to a tech giant, there are enough alternative customers for companies like Nvidia and AMD for an Apple in-house move to be a news headline, but not a death blow.
And as a consumer, some competition from Apple will light yet another fire under these two competitors, likely improving the quality of your graphics in the near-term. Unless your Imagination Technologies, this news is far from bad.
Hilary Kramer is the editor of GameChangers, Breakout Stocks, High Octane Trader, Absolute Capital Return and Value Authority. She is an accomplished investment specialist and market strategist with more than 25 years of experience in portfolio management, equity research, trading, and risk management. She has extensive expertise in global financial management, asset allocation, investment banking and private equity ventures, and is regularly sought after to provide her analysis on Bloomberg, CNBC, Fox Business Network and other media.