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Comms chips

No Imagination: UK Chip Biz Goes Up for Sale

UK chip designer Imagination Technologies has put itself up for sale just weeks after iPhone maker Apple said it would stop using the company's technology. (See Eurobites: UK UBB Providers Cry Foul Over 'Phony Fiber'.)

Imagination Technologies Group plc said it had decided to begin a formal sale process after a number of parties expressed interest in buying it.

It had already put its MIPS and Ensigma operations up for sale and also said today that it has received "indicative proposals" for both of those businesses.

The MIPS processors are aimed largely at supporting autonomous vehicle technologies, while Ensigma focuses on wireless connectivity as well as the broadcasting sector.

The company remains locked in a dispute with Apple, which accounts for about half of Imagination's revenues but announced in April that it would stop using Imagination within two years. (See Eurobites: Imagination Rocked by Apple Shut-Out.)

Imagination has argued that Apple Inc. (Nasdaq: AAPL) will struggle to develop its own chip technology for iPhones, iPads and iPods without intruding on its intellectual property.

It kicked off legal proceedings over license payments last month.

Potential bidders for Imagination could include Qualcomm, Intel and Apple, which currently owns an 8% stake in the business.

Qualcomm Inc. (Nasdaq: QCOM) is involved in its own bitter intellectual property dispute with Apple and might regard a takeover of Imagination as a source of ammunition in that battle. (See Qualcomm Blasts Apple for Disrupting Deals in Legal Dispute.)

Although Apple appeared to rule out a takeover of Imagination last year, it could decide otherwise simply to keep Imagination out of Qualcomm's hands.

Intel Corp. (Nasdaq: INTC) could be attracted in particular to Imagination's MIPS business given its growing interest in autonomous vehicles. (See Intel Buying Mobileye for $15 Billion.)


For all the latest news from the wireless networking and services sector, check out our dedicated mobile content channel here on Light Reading.


Imagination's share price lost more than 60% of its value on the London Stock Exchange following Apple's announcement in April, falling to just £1.03 ($1.30, at today's exchange rate).

Shares were boosted by today's news, however, and trading up 17%, at about £1.45 ($1.84), at the time of publication.

Imagination made revenues of £64.4 million ($81.5 million) in the six months to October 2016, an increase of 6% on sales in the year-earlier period.

It also swung from an operating loss of £5.5 million ($7 million) to a profit of about £2.9 million ($3.7 million) over the same period.

Net losses including discontinued operations came in at £10.1 million ($12.8 million), down from £20.8 million ($26.3 million) a year earlier.

— Iain Morris, Circle me on Google+ Follow me on TwitterVisit my LinkedIn profile, News Editor, Light Reading

brooks7 6/27/2017 | 2:00:46 AM
Re: Another one bites the dust James,

It is also not market manipulation...Apple chooses to go a different way.  Imagination tries to sell themselves.  These are completely indpendent actions.  Apple did not make the latter happen.  Imagination could just carry on.  Therefore, Apple did nothing.  Even if they bald faced lied to Imagination.  It is Imagination's board that has offered the company for sale - not Apple.

So, yep stupid board...bad decisions all around.

seven

 

Edit:  I wanted to add something about customer concentration here.  For a company that has been around as long as MIPS, you have to treat that huge contract as inherently unstable.  Once the value of the contract is more than the replacement value by Apple, then it is only a matter of time before Apple makes the decision to replace it.  In IP terms, that means that the value of IP has to decline with time and volume.  How much do you want to bet that Imagination was not interested in lowering licensing fees over time?  It is not like there are not other cores that can be licensed or processor development teams don't exist in Northern California. 
James_B_Crawshaw 6/26/2017 | 6:38:05 PM
Re: Another one bites the dust I'll repeat, I wasn't suggesting that Apple would be in breach of insider information regulations in my hypothetical example.

The example I gave was of market manipulation. Company A said they were going to stop using B's products even though they actually intended to continue using them. Company B's board had to make this information public as it was material. After the share price collapses company A offers to buy B at a lower price than before it falsely claimed it would stop using the product. Even though it is company B that has made the announcement I think company A would still fall foul of the rules on manipulative behavior and deception.

You are describing a different scenario where Apple genuinely decided to stop using Imagination's products and then because its market cap fell a few $100m they then decided to buy the company. That doesn't seem like a credible scenario to me as the numbers are too small to matter to Apple.

It is a bit harsh to say Imagination was utterly stupid. The company has been around for a long time eking out an existence and then struck gold when Apple started using their graphics IP and the Apple products took off. They won a number of other semiconductor customers, acquired MIPS to diversify their product offering and organically tried to address new markets such as IoT. If they lose Apple they would have to restructure but they might just survive. 
brooks7 6/26/2017 | 2:05:05 PM
Re: Another one bites the dust "It contains prohibitions of insider dealing, unlawful disclosure of inside information and market manipulation, and provisions to prevent and detect these." - from your link...the same rules as the US.

Given that your hypothetical has no insider informaion it has no illegality at all.  Seems like a great strategy to me.

I want to be completely clear here.  When I was with AFC, we were a 90% customer of Broadlight and led one of the rounds as a part owner.  When we asked them to build what we were being told by Verizon for GPON, they refused.  We built our own OLT FPGA.  When they came back to sell there part, we said thanks but no thanks.  There is nothing about that which was illegal.

Apple decided to go its own way and told their vendor.  The vendor decided to sell the company.  If Apple then decides to bid on the remains, that is their right as these are these are completely separate decisions. 

Just as an aside, what Imagination did was utterly stupid.  They basically built a business on the whim of a much larger company.  It is obvious to the most casual of observer that this was an unstable situation. 
James_B_Crawshaw 6/26/2017 | 1:29:44 PM
Re: Another one bites the dust I think the hypothetical scenario I described would be classed as market manipulation and a breach of the market abuse regulation. You can read about it here:

https://www.fca.org.uk/markets/market-abuse/regulation

I wasn't suggesting that Apple would be in breach of insider information regulations. However, Apple is privy to lots of non-public, price-sensitive information about Imagination and hence is an insider. As such they would not have been able to sell their holding in Imagination ahead of the disclosure of their plans to design out Imagination's IP. Even now I think they would be quite restricted in selling on the stock exchange. However, I think they could tender in a public offer without breaching the rules. Apple's holding of 23.0m shares is unchanged since June 2011. 
brooks7 6/24/2017 | 6:05:22 PM
Re: Another one bites the dust James...

Yes, it sounds completely legal.  Again, what is the material, non-public information involved?  Does it sound like some disgruntled shareholder would sue?  Well, the company already has.

seven

 
James_B_Crawshaw 6/22/2017 | 7:10:33 PM
Re: Another one bites the dust Without knowing the details we can only hypothesize. But let's say Apple owns 8% of the company and is its main customer. They decide they want to buy the company on the cheap and bring it in house to save costs. They tell the company they are going to stop using its products. The company is forced to disclose this to it shareholders. Its share price craters. Then Apple buys it for approximately half of what it was trading at before the announcement. Does that sound legal to you?
bosco_pcs 6/22/2017 | 6:54:19 PM
Re: Another one bites the dust Not from the UK but recent takeovers seem to suggest there are certain perculiarities as far as M&A is concerned in that country, such as declaration of intentions (not official legalese). 

But I think it is moot since it doesn't seem to be Apple's style - at least under Tim Cook - to mess around with its partners. I have cited a few cases but forgot to mention GT Advanced Tech. Quite on the contrary, very often Apple would front its suppliers' heavy duty Capex. Based on the latest salvo from Imagination, it seems to be pulling a QCOM on Apple. If so, that might be what ticking Apple off. 

 
brooks7 6/22/2017 | 6:07:51 PM
Re: Another one bites the dust  

How could it be a breach of security laws unless Apple is on the board or receives material, non-public information?   They didn't control the company putting itself up for sale.  They only controlled their actions.

seven

 
James_B_Crawshaw 6/22/2017 | 5:10:26 PM
Another one bites the dust There goes another UK tech midget. Imagination Technologies RIP

For Apple to make a preemptive bid for Imagination now must surely breach securities law. They could make a counter bid in fairness but if their roadmap is really without Imagination then why would they bother? If it's not really without Imagination and they are just threatening in order to negotiate down the royalty rate then again it gets very murky from a legal perspective for Apple.

The most logical suitor for Imagination would be CEVA which has the same business model. But with a $1bn market cap I don't think they have the fire power to acquire the whole of Imagination. And as Softbank's purchase of ARM shows, industrial logic does not always drive M&A.

Qualcomm has always used its own graphics IP and I think they would have bought Imagination years ago if they rated the technology. I don't see how buying IMG now would give them leverage in their own dispute with Apple. They have enough on their plate.

Intel is paying $15bn for Mobileye whose processors are based on MIPS IP so they certainly have an interest in where that asset goes. $500m for the whole of Imagination is chump change for Chipzilla.

Other potential homes for IMG assets include Spreadtrum and Mediatek. Oh and Broadcom – they'll buy anything. 
bosco_pcs 6/22/2017 | 3:39:50 PM
Is this a nothing-to-lose move? Never seen a company sue for royalties of non-existing products. Beyond that, it wouldn't be a surprise if QCOM or even Samsung bid for the company just to troll Apple.

Separately, one has to wonder something nasty going on under the cover, considering Apple is a shareholder of the company. Apple may not be the most generous customer but it is unusual for it to be draconian. Sure, it got into legal tangles a lot but usually was in self-defense. For example, it was friendly with Google and willing to share iPhone with Google until the latter went behind its back to do Android. Samsung, the same. And it was in okay term with QCOM until the latter refused to pay the rebate. At least these were in the news. So there has to be something between Imagination and Apple. One possibility is Imagination has refused Apple to fork the designs like what Apple did to the ARM chip
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