Imagination: Patents & Losing an Essential Contract

As for Imagination, the news is undoubtedly grim, but not necessarily fatal. Imagination has never hidden the fact that Apple is their most important customer – even labeling them as an “Essential Contract” in their annual report – so it’s no secret that if Apple were to leave Imagination, it would be painful.

By the numbers, Apple’s GPU licensing and royalties accounted for £60.7M in revenue for Imagination’s most recent reporting year, which ran May 1st, 2015 to April 30th, 2016. The problem for Imagination is that this was fully half of their revenue for that reporting year; the company only booked £120M to begin with. And if you dive into the numbers, Apple is 69% of Imagination’s GPU revenue. Consequently, by being dropped by Apple, Imagination has lost the bulk of their GPU revenue starting two years down the line.

Imagination Financials: May 1st, 2015 to April 30, 2016
  Company Total GPUs Total Apple
Revenue (Continuing) £120M £87.9M £60.7M
Operating Income -£61.5M £54.7M

The double-whammy for Imagination is that as an IP licensor, the costs to the company of a single customer is virtually nil. Imagination still has to engage in R&D and develop their GPU architecture and designs regardless. Any additional customer is pure profit. But at the same time, losing a customer means that those losses directly hit those same profits. For the 2015/2016 reporting year, Apple’s royalty & licensing payments to Imagination were greater than the profits their PowerVR GPU division generated for the year. Apple is just that large of a customer.

As a result, Imagination is being placed in a perilous position by losing such a large source of revenue. The good news for the company is that their stakes appear to be improving – if slowly – and that they have been picking up more business from other SoC vendors. The problem for Imagination is that they’ll need a drastic uptick in customers by the time Apple’s payments end in order to pay the bills, never mind turning a profit. Growing their business alone may not be enough.

Which is why Imagination’s press release and the strategy it’s outlining is so important. The purpose of Imagination’s release isn’t to tell the world that Apple is developing a new GPU, but to outline to investors and others how the company intends to proceed. And that path is on continued negotiations with Apple to secure a lesser revenue stream.

The crux of Imagination’s argument is that it’s impractical for Apple to develop a completely clean GPU devoid of any of Imagination’s IP, and this is for a few reasons. The most obvious reason is that Apple already knows how Imagination’s GPUs work, and even though Apple wouldn’t be developing a bit-for-bit compatible GPU – thankfully for Apple, the code app developers write for GPUs operates at a higher level and generally isn’t tied to Imagination’s architecture – those engineers have confidential information about those GPUs that they may carry forward. Meanwhile on the more practical side of matters, Imagination has a significant number of GPU patents (they’ve been at this for over 20 years), so developing a GPU that doesn’t infringe on those patents would be difficult to do, especially in the mobile space. Apple couldn’t implement Imagination’s Tile Based Deferred Rendering technique, for example, which has been the heart and soul of their GPU designs.

However regardless of the architecture used and how it’s designed, the more immediate problem for Apple – and the reason that Imagination is likely right, to an extent – is replicating all of the features available in Imagination’s GPUs. Because Apple’s SoCs have always used GPUs from the same vendor, certain vendor-specific features like PowerVR Texture Compression (PVRTC) are widely used in iOS app development, and Apple has long recommended that developers use that format. For their part, Apple is already in the process of digging themselves out of that hole by adding support for the open ASTC format to their texture compression tools, but the problem remains of what to do with existing apps and games. If Apple wants to ensure backwards compatibility, then they need to support PVRTC in some fashion (even if it’s just converting the textures ahead of time). And this still doesn’t account for any other Imagination-patented features that have become canonized into iOS over time.

Consequently, for Imagination their best move is to get Apple to agree to patent indemnification or some other form of licensing with their new GPU. For Apple it would ensure that nothing they do violates an Imagination patent, and for Imagination it would secure them at least a limited revenue stream from Apple. Otherwise Imagination would be in a very tight spot, and Apple would face the risk of patent lawsuits (though Imagination isn’t making transparent threats, at least not yet).

Apple’s Got No Imagination The Future: Competition, Secrecy, & the Unexpected
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  • SaolDan - Wednesday, April 5, 2017 - link

    Lol Reply
  • xype - Tuesday, April 4, 2017 - link

    Last year I read reports that AMD and Apple are "cooperating on GPUs", and I assumed the thinner MBP GPUs were the result of that. But maybe those were just a first step? Reply
  • GraXXoR - Tuesday, April 4, 2017 - link

    Now that their share price has tanked 70% they can be bought out by Apple for a fraction of their previous price. Nicely done, Apple! Reply
  • Zingam - Tuesday, April 4, 2017 - link

    Let the patent infringement law suits begin!!! Reply
  • R3MF - Tuesday, April 4, 2017 - link

    Given the logic expressed in this article as to why Apple pursued autonomy in the CPU space, and how the forms a lens for us to look at their GPU ambitions, surely it makes more sense for them to tank ImTech's share price... and then buy them.

    It gives them a world class GPU tech and patent portfolio... and their very own CPU architechure (MIPS).
    Reply
  • SydneyBlue120d - Tuesday, April 4, 2017 - link

    Could it make sense for Mediatek to buy Imagination? Reply
  • vladx - Tuesday, April 4, 2017 - link

    It could, but I doubt it unless Imagination loses against Apple and gets valued much lower than even now. Reply
  • Ananke - Tuesday, April 4, 2017 - link

    Apple made two large R&D investments in China, and last week agreed to two more R&D facilities in China. All these engineers and billion dollar investments there should be kept busy, and Apple will need to cut somewhere in the US.
    If Apple doesn't invest in China, and eventually doesn't transfer know how and technology there, Chinese will shut the market for them - like they did several times already, with "iStore" outages :) :)
    Reply
  • DezertEagle - Tuesday, April 4, 2017 - link

    I'd like to believe this is a smart move considering Imagination Technologies just brokered a deal w/ Qualcomm and because Apple's HW secrets seem to be compromised by agencies affiliated w/ the CIA.

    Ever since 2011, the year Microsoft/Nvidia turned it's graphics API's (i.e. DirectX 11+) into undetectable ominous spyware, I've been increasingly paranoid these outsourced GPU/SoC architectures have opened up arbitrary but functional methods for injecting unmanaged code into their host operating systems. I've read several stories of Qualcomm having an extensive dirty little past of surveillance secrets embedded in their devices.

    So my major point of contention here is: If IMG Tech uses the same PowerVR architecture for both Apple and Qualcomm/Android, would this enable hacked Qualcomm devices to become a test bench for designing software & firmware to infect Apple products?
    Reply
  • HomeworldFound - Tuesday, April 4, 2017 - link

    You really don't need a hardware back door on Apples devices now, the best attacks are performed on automatic backups made by iTunes when a device is connected to the computer or when a device uploads data into the cloud. Apple gets to say it's device security is unaffected by the FBI/CIA while they get basically any information they want with some brute force and court orders.

    Apple intentionally made the encryption applied to those backups weaker. Apple got it's way
    Reply

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