The basic news: https://arstechnica.com/business/2017/04/apple-ditches-imagination-technologies-shares-collapse/

More detail/context/background: http://www.anandtech.com/show/11243/apple-developing-custom-gpu-dropping-imagination

Basically, Imagination Technologies is an IP-only company who designs the SGX series of GPUs currently used in all Apple iOS based devices. Apple informed them that in about two years, they have no further use for Imagination's IP - meaning they will be designing their GPUs in-house from scratch. That led Imagination to issue this rather pointed press release where they publicly threaten Apple:

Imagination Technologies Group plc (LSE: IMG, “Imagination”, “the Group”) a leading multimedia, processor and communications technology company, has been notified by Apple Inc. (“Apple”), its largest customer, that Apple is of a view that it will no longer use the Group’s intellectual property in its new products in 15 months to two years time, and as such will not be eligible for royalty payments under the current license and royalty agreement.

Apple has used Imagination’s technology and intellectual property for many years. It has formed the basis of Graphics Processor Units (“GPUs”) in Apple’s phones, tablets, iPods, TVs and watches. Apple has asserted that it has been working on a separate, independent graphics design in order to control its products and will be reducing its future reliance on Imagination’s technology.

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.

Further, Imagination believes that it would be extremely challenging to design a brand new GPU architecture from basics without infringing its intellectual property rights, accordingly Imagination does not accept Apple’s assertions.

Apple’s notification has led Imagination to discuss with Apple potential alternative commercial arrangements for the current license and royalty agreement.

Imagination has reserved all its rights in respect of Apple’s unauthorised use of Imagination’s confidential information and Imagination’s intellectual property rights.

Imagination's shares are currently down about 62% compared to yesterday on the news.

Some small questions remain - will the new architecture be TBDR, will it support PVRTC, what will compatibility be overall, etc. At a broad scale however, the announcement is perhaps not that surprising. Apple's been aggressive about developing their own chip IP (their CPUs are in-house ARM-compatible designs) and has been aggressively hiring GPU engineers for some time. They also control their own graphics API, Metal, and are generally well poised to compete in this market.

As an addendum, I'll note that it would be crazy to design your own GPUs and not anticipate scaling up to all classes of devices. A move to a new CPU design or architecture is hard, but a move to a new GPU is not. It's not unreasonable to believe that Apple is evaluating doing custom GPUs across the product line to replace licensed or purchased silicon. A few more years might bring us Macbook series laptops with Apple GPUs too.

Also see https://www.gamedev.net/news/index.html/_/business/apple-goes-vertical-on-the-gpu-r75

Wonder if Apple are talking down the stock so they can buy out the whole company.

If it comes to a legal fight, Apple can certainly "afford more justice" than Imagination. That letter looks like posturing, warning that they can sue and make it very public in the hopes that it can get a windfall.

But it won't. There isn't any point. Apple can destroy any legal threat far easier.

From a few seconds of research, Apple paid Imagination about $75M for royalties in 2016 and about the same in 2015. The company has a current market cap of $360M.

In contrast, Apple has over $246B in "cash on hand", which really isn't cash but moderately liquid assets.

Right now today, Apple could buy the company outright in a quick hostile takeover, and if it wanted to it could immediately fire the executives causing trouble, pull in the best teams, and take ownership of their entire IP portfolio. They could do it using less then a half of one percent of their cash on hand. Even if they had to pay a premium to get enough of the board's shares, they could likely get a controlling share for under $400M, enough to make sense if you look at licensing costs over the longer term of five years and beyond.

They could even call it a strategic investment in IP on their earnings report and it would be accurate. Even if they take a slight loss at the action, it's cheaper than paying license fees every year.

With Imagination's open letter and subtle threat their stock prices dropped by nearly 2/3, so they may have torpedoed their own ship. Now Apple can buy up their company and make a hostile takeover for far less than they could have a few days ago. That was a stupid thing of them to post.

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.

Apple has also failed to present any evidence that they won't require my intellectual property either. (This is a strange demand.)

Personally I'm not happy at the continued consolidation of power in the industry. But on the other hand I'm not convinced Apple has any idea what it's doing these days or who its audience actually is, so this may well implode.

That press release made me really sad for the state of the world.

"A customer gave us a heads up that they won't be needing our services. We don't believe them. They haven't published proof that they don't need us. They're lying. We demand they prove it publicly!"

The world of intellectual property is psychotic. Imagine getting that letter from your barrister - you'd have them committed :o

Might be a clever move, depending on how Brexit evolves. Those patents are ilkely EU patents (and separate US patents), and if Mrs. May fails to negotiate her 20,000 point contract with the EU and it comes to a hard exit, those might as well be void. Which means Apple could just open their chip manufacturing site in Ireland in 2019 and show them the middle finger, and 100% legally with not much they can do.

Or, being robbed of basically almost all of its income, Imagination stock might be so cheap by end of the year that they can buy the whole company for £20,000, thereby owning all patents anyway.

I can't imagine a situation where a patent ceases to exist simply because the registrant is no longer based in the EU, especially since you don't have to be from the EU to register a European patent. I also can't imagine that the patents aren't registered independently in the USA and every other reasonable territory too.

That press release made me really sad for the state of the world.

"A customer gave us a heads up that they won't be needing our services. We don't believe them. They haven't published proof that they don't need us. They're lying. We demand they prove it publicly!"

The world of intellectual property is psychotic. Imagine getting that letter from your barrister - you'd have them committed :o

That part of the press release made me giggle. I wonder if it's fear or just righteousness that lead them to write that.

That press release made me really sad for the state of the world.

"A customer gave us a heads up that they won't be needing our services. We don't believe them. They haven't published proof that they don't need us. They're lying. We demand they prove it publicly!"

The world of intellectual property is psychotic. Imagine getting that letter from your barrister - you'd have them committed :o

That part of the press release made me giggle. I wonder if it's fear or just righteousness that lead them to write that.

Both. Keep in mind that Imagination very nearly has no other business. They're a pure IP company (much like ARM), so licensing and patent suits are the limits of their ability to compete. The share of PowerVR in the Android market has cratered - Aras P (Unity) said 25% in 2014 down to 5% today by their numbers. It makes sense - most other groups offering a CPU will offer a GPU design that integrates neatly. Unlike Qualcomm, ARM, etc, Imagination doesn't offer their own CPU-GPU SoC ready to go. (According to their site, Imagination's CPU technology is MIPS. Ouch.)

They will most likely file suit, and most likely win a trivial settlement for trivial infringements that will in no way replace the amount of revenue they're about to lose.