On Monday, graphics chip maker Imagination Technologies announced that one of its biggest customers, Apple Inc. AAPL, has dumped them. The British company saw its stock, which trades on the London Stock Exchange under the ticker “IMG,” plunge over 70% at one point--shares have recovered slightly, and are now down around 63%--after Apple said it planned to fully stop using Imagination Tech’s products within 15 months to two years.
According to Imagination Tech, Apple has apparently been “working on a separate, independent graphics design in order to control its products,” though the company is skeptical Apple could do so without infringing on multiple patents and intellectual property, or even revealing confidential information. Imagination’s technology can be found in Apple’s iPhone, iPad, iPod, TV, and Watch, and has been used by the tech giant for many years. It wouldn’t be surprising if legal troubles arise in the future.
Over the years, Imagination Tech has basically built a revenue model around its business from Apple. and the company gets about half of its total revenue from the iPhone maker; Apple represented revenue of $75.9 million for Imagination's 2016 fiscal year, is forecast to reach $81 million for the current fiscal year. Apple is also one of its largest investors, holding an 8% stake that it has added to over the years. If Apple leaves, Imagination will see its revenue base be cut by more than half.
And Imagination Tech is not the only company with a “dangerous reliance” on Apple, notes Forbes. You have chip suppliers like SkyWorks SWKS, InvenSense INVN, and Cirrus Logic CRUS who depend on the tech giant for over half of their total revenue; even their stocks rise and fall together with AAPL shares. Now, one can only assume if Apple decides to break ties with either of these partners, they could see their stocks crater just as much as Imagination Tech’s.
Currently, AAPL is a #3 (Hold) on the Zacks Rank.
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Zacks Investment Research
April 03, 2017 at 10:55PM
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from Madeleine Johnson
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