What happens when the biggest tech company in the world stops buying your products?
Imagination Technologies is learning that lesson right now — and it’s very painful.
Apple told the British company it plans to stop licensing the firm’s technology in about two years. As soon as the news came out on Monday, Imagination shares plunged by as much as 72%. They’ve recovered slightly since.
Imagination Technologies owns and licenses intellectual property that helps power the graphics on the screens of Apple’s iPhones, tablets, iPods, TVs and watches.
Just over half of the company’s annual revenue comes directly from Apple.
In a statement, Imagination said Apple had said it is “working on a separate, independent graphics design in order to control its products.”
But the British tech firm doubts Apple will be able to come up with a standalone solution.
“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.
Apple declined to comment.
Imagination Technologies is now discussing potential alternative sales arrangements with Apple. It’s also looking to diversify its business to serve the mid-range phone market. But investors clearly are panicking about its prospects.
The firm was worth almost $1 billion last week. Now its market capitalization has slumped to around $348 million. Apple is also getting hurt. It owns an 8% stake in Imagination Technologies.
The firm’s future was looking much rosier less than a month ago when it unveiled brand new graphics technology that could be used in self-driving cars, virtual reality devices and high end smartphones.
Back then, Liberum analyst Janardan Menon predicted happy days ahead for the company and said shares in the company could rise by about 25% as it began getting its technology into new kinds of devices.