Founded in 1985, Imagination Technologies is a British chip design company based in Hertfordshire. It’s a household name in the UK technology industry and it’s had a fruitful relationship with the world’s biggest company, Apple, for several years.

The 32-year-old firm, which employs around 1,700 people, floated on the London Stock Exchange in 1994 and had revenues of around £120 million for the year leading up to April 2016.

More than half of the company’s revenues come from Apple, according to The Financial Times.

That’s why the company’s stock crashed in a big way on Monday when Apple announced that it was going to stop using Imagination’s graphics processing unit (GPU) in its products, which are sold to hundreds of millions of people around the world.

In addition to GPUs, Imagination also creates and licenses processor designs for video processing and communications. The company claims on its website that it essentially creates “the key processing blocks needed … to create the Systems on Chips (SoC) that power electronic devices.”

Apple, which owns a 9.5% stake in Imagination, has been using the firm's GPU chip designs in its iPhones, iPads, and iPods since 2008 under a licensing agreement.

But going forward, Apple intends to replace Imagination's technology with its own technology that it will build in house.

With Apple planning to go its own way, shares in Imagination were down over 75% on Monday morning, which means approximately £500 million was been wiped off the company's market value.

imagination

Foto: source Investing.com

Imagination said in a statement: "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."

The breakup between the companies is poised to become bitter

Last March, Apple admitted that it had held talks with Imagination about acquiring its business. But Apple pulled out of the acquisition and went on to hire a number of Imagination's key people instead.

The biggest hire is John Metcalfe, whose LinkedIn profile says he's been working as a senior director at Apple since last July. He was Imagination Technology's COO for a decade before that, and was nearly a 20-year veteran of the company. In October 2015, Apple hired Imagination's VP of hardware engineering to be a director based in the United Kingdom.

Imagination said it doesn't know how Apple will make devices in the future without violating intellectual property laws.

"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," the company said. "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."

Imagination said will look for other commercial partners to license its technology to in light of Apple's decision but the damage of the breakup could be catastrophic for Imagination, according to analysts.

"It is undoubtedly a black swan moment for Imagination," Neil Campling, analyst at Northern Trust, told City A.M.. "There is no way they could have seen that coming. Apple is around 50 per cent of revenues. And with this dispute comes the additional overhang that Apple will seek to sell their shareholding.

"To replace lost Apple revenues will need many design wins at other OEMs (original equipment manufacturers) but that would take time and any near term beat from the Apple supercycle over the next 12 months will be overshadowed by this looming overhang. And, if Apple believes there is essentially a work around made possible, then other smartphone designers will be evaluating the same."