Why Would Apple Want to Make GPU Chips? (AAPL)

Imagination Technologies has long been known as the company behind Apple's graphics. In a little over a year, all that will change.

Apple GPU

In an announcement that was as surprising as it was inevitable, Apple Inc (NASDAQ:AAPL) notified Imagination Technologies Group, a key GPU core licenser to Cupertino for years, that their longstanding business partnership is coming to an end. Specifically, the iPhone maker says that within 15 – 24 months, they will stop using Imagination’s IP (intellectual property) for their new products in lieu of GPU (graphics processing unit) chips that they will be designing themselves.

In short, Apple is saying that from hereon, they will be developing their own GPU, a move that will enable the tech giant to have more control over its upcoming products. It also means that Apple will no longer be making royalty payments to Imagination based on their present license and royalty agreement.

Although Apple is presently Imagination’s largest customer, accounting for about half its revenue, the chip designs of the U.K.-based graphics IP firm are not exclusively used in Apple products. Imagination’s technology is also being used in virtual reality headsets, wearable devices, consumer multimedia products, and even in automobiles too.

Still, losing Apple is considered as a big blow for Imagination. It’s clearly reflected in the company’s share price which have dropped to record lows. Prior to Apple’s announcement, the company’s value was estimated at more than 750 million Pounds. Its value has now crashed to less than 250 million Pounds.

On the other hand, the move is a big leap for Apple. And it’s an exciting prospect for Apple fanatics too. Because an Apple-made GPU should necessarily complement an Apple-made processor.

Instead of depending on someone else’s technology, designing your own will make it easier to do adjustments and initiate changes needed so your devices will work as you want them to. If before, Apple could only tweak its software to match its hardware, with this move, they will now be able to tweak their hardware to match their software as well. And in case something doesn’t go as planned, there’ll be no one else to blame. And that’s a big motivation to make sure everything is as perfect as it can be.

That said, however, it isn’t that simple. Why? Because Imagination’s tech has been the sole basis of all of Apple’s graphics – starting from the very first iPhone. From its part, Imagination is contesting the notion that Apple will be able to design a brand new GPU architecture from basics, noting that any GPU Cupertino will develop will in one way or another infringe on Imagination’s patented technology or confidential information. Imagination also said that it reserves the right to challenge any unauthorized uses of its technology.

Complicating the matter further is that fact that Apple is part owner of the British chip designer and holds about 8.5% of its shares which nosedived by nearly 70%, after Apple said that it would stop licensing the company’s technology. That raises the possibility that Apple’s current threat to cut its future reliance on Imagination might be a bargaining strategy to lower its licensing fees to the company.

And this is what makes the situation quite complicated. It’s also why discussions between the two companies will not likely lead to any kind of settlement any time soon given that Imagination is intent on defending their IP rights. Additionally, they are asking Apple to provide proof that it can truly do away with all of Imagination’s technology. So far, though, Apple has yet to respond to the request.

We’re now part of a waiting game. Partners before, opponents today? Let’s hope not. That said, all indications point toward a legal battle ahead.

4 Comments on Why Would Apple Want to Make GPU Chips? (AAPL)

  1. Apple has probably been working on developing (designing and prototyping) its own GPU for at least the past two years, if not longer. And Imagination Technologies must have known this, or at the very least suspected it.

    Last year Apple made offers to acquire Imagination Technologies, but the management at Imagination Technologies refused to discuss this possibility with Apple. With Imagination Technologies’ awareness that Apple was developing its own GPU, and rebuffing Apple’s attempts to acquire the company at a much higher value than it is now, it was only a matter of time before Apple threw in the towel and decided to go ahead without trying to acquire Imagination Technologies.

    The management of Imagination Technologies have only themselves to blame for the nearly 70% drop in the company’s value.

  2. Apple probably thinks that it can hide the fact that “their GPU chips” are better “this” and better than “that”, while the bottom line is that there will be “less Chip” and more “cheapness” built-in for which they will pay far less money and they will make more money – for less GPU…….

  3. This story claims that “Imagination’s tech has been the sole basis of all of Apple’s graphics,” but this isn’t even close to accurate. Imagination’s graphics tech is in chips for Apple hardware that runs iOS, but the Mac line uses graphics from Intel, AMD and Nvidia.

    When Apple quit using ARM-based chips made by Samsung, a lot of people fretted that this meant Apple was just trying to save money, but the truth is that Apple’s own ARM-based A-series chips have far surpassed the chips being used in the rest of the ARM world. By designing chips tailored to the needs of its own operating system and by pushing hard for rapid development, Apple has surpassed the rest of the smartphone chip world. If the company is really going to integrate the GPU into the A-series chips — as I believe it will — the likely result is a huge performance improvement. Although saving money by not paying Imagination is nice, this is about performance and control, not be pinching pennies.

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