Apple To Develop Own GPU, Drop Imagination's GPUs From SoCs
by Ryan Smith on April 3, 2017 6:30 AM ESTImagination: 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).
Facebook
Twitter
RSS
144 Comments
View All Comments
DJFriar - Monday, April 3, 2017 - link
Except Apple didn't manipulate the market, did they? (honest question here). If Apple told Imagination during a phone call they were looking at dropping them in 18-24 months, and Imagination went and made that information public, would that really be Apple manipulating the market? It would seem it would have required Apple to make the public statement. Or is who said it not at all relevant in these kind of cases?fanofanand - Monday, April 3, 2017 - link
If that's illegal market manipulation I would LOVE to see how the Nokia/Microsoft deal went down. If THAT transaction was legal how it went down, I don't know what could possibly be viewed as a market manipulation tactic. To eliminate your product line, driving down the stock to previously unimaginable levels, then selling the company to a group that is hiring you and you stand to make millions off the sale, and THAT was legal? This would be nothing compared to that.prisonerX - Tuesday, April 4, 2017 - link
Public corporations are required to release information that materially changes their circumstances as soon as they receive it. It's irrelevant who creates that information.name99 - Monday, April 3, 2017 - link
Oh, take off your tin-foil hat.We know the sequence of events.
https://arstechnica.com/apple/2016/03/apple-acquir...
One year ago Apple talked to Imagination. Imagination probably thought they were indispensable nd could charge whatever they wanted ("OK, our market cap is 500 million pounds, so how about we'll sell for 650 million") to which Apple said basically "fsck you. We've given you our price, take it or leave it".)
These company sales negotiations are not especially rational.
Company CEOs who got there through the science/engineering route tend to be too TIMID, too scared that what they've done can easily be copied, and so they sell too cheap.
On the other hand, company CEOs who got there through sales or finance tend to have a wildly over-inflated view of how unique and special their technology is, and so insist on unrealistically high sales prices. This second looks to me like what happened here --- too many IMG execs drank their own koolaid, asking things like "what's a reasonable P/E multiplier? Or should we price based on annual revenue" NT "how hard would it be to duplicate what we offer". Especially when you factor in that all the most ambitious engineers at IMG would likely be happy to leave for Apple if an offer were, regardless of who owns IMG, just because Apple will give them more scope for grand projects.
Meteor2 - Wednesday, April 5, 2017 - link
Well, I don't know how many Imagination engineers would want to up sticks from Cambridge, England and move to California. Some, of course, but probably not many. I don't think Apple has an engineering presence in the UK.But generally yes, there must be quite a few people feeling sick and rather stupid in Cambridge this week. CSR, who are next door, sold themselves to Qualcomm last year and it's done them no harm.
name99 - Wednesday, April 12, 2017 - link
Why would you imagine that the largest company in the world only has engineering employees in California?Apple has a UK headquarters today, which it is in the process of moving to a substantial new building, basically the UK equivalent of the new Cupertino spaceship campus. (Not identical because this is space Apple is renting, but presumably it will be "Apple-ized"...)
http://www.theverge.com/2016/9/29/13103702/apple-u...
lefty2 - Monday, April 3, 2017 - link
I wonder if they are still going to be support Imagination's PVR format (That's a proprietary texture format). Practically every OpenGL game in the App store is using the PVR format, so if they pulled support for it that would cause mayham.Hamm Burger - Monday, April 3, 2017 - link
Excellent article, particularly considering how quickly it was posted following the press release.One thing, though: it doesn't specifically mention VR, a field of which Tim Cook has said (among a few other pronouncements) “I don’t think it’s a niche, […] It’s really cool and has some interesting applications.” Could it be that Apple has decided that it needs its own architecture to do VR better than the competition?
ATC9001 - Monday, April 3, 2017 - link
I think you're right...I think they are eyeing VR/augmented reality and hedging on needing more GPU power. Hell, Intel's current (maybe past now) push with Iris was spurred by Apple forcing them to get stronger IGP.They wanted better CPU performance and said hell we can do this better ourselves and they did with cyclone and blew everyone away. They'll do the same with the GPU...
DroidTomTom - Monday, April 3, 2017 - link
This was my first thought too. This is the only field where a drastic departure from the status quo can have a big impact because it is still in its infancy. More power efficiency is really needed to make that push to good enough visual quality in a portable mobile design. They are currently falling behind in Virtual Reality and Augmented Reality to HTC, Samsung, Sony, Facebook, Microsoft, and Google.