Apple Fires Back At Supplier Imagination in Contract Dispute
When the iPhone supplier Imagination Technologies Group Plc announced in April thatApple Inc. would no longer be using its graphics technology, investors in the small U.K. company were shocked. The graphics provider’s stock collapsed more than 60 percent.
But while investors were caught off guard by the move, Apple said Imagination had known for nearly two years that it was winding down the relationship.
Apple first informed Imagination in late 2015 that it would no longer be buying the U.K. company’s latest technology, Apple said in a statement to Bloomberg. It continued using its older systems.
By 2016, Apple said it told Imagination it was further diminishing the relationship by initiating a clause in its contact that allows Apple to pay a lower royalty rate for using a smaller amount of intellectual property. By February of this year, Apple said it told Imagination it was ending the relationship altogether and would no longer be making any royalty payments as early as 2018.
Apple’s statement clashes with Imagination’s time line of events. On a conference call with investors this week, Imagination CEO Andrew Heath said the company was informed by Apple at the end of March "that they were certain" that products to be released in 2018 or early 2019 will no longer use Imagination’s intellectual property.
Apple’s decision to drop Imagination is devastating to Imagination’s business and an example of the power the Cupertino, California-based company has over suppliers who depend on its business. Imagination’s shares are down 41 percent since March 31, the last business day before it revealed the dispute with Apple. Oliver Knott, an analyst at N+1 Singer Ltd., said Imagination will struggle to stay in business as an independent company without Apple as a customer.
Imagination recently announced it’s attempting to sell the company. Apple, which owns a stake in Imagination, isn’t likely to make an offer, according to a person familiar with the matter.
Imagination isn’t the only supplier Apple is battling. The iPhone maker is entangled in an escalating legal dispute with Qualcomm Inc., the world’s largest maker of mobile chips. Apple is refusing to pay Qualcomm royalties and filed an antitrust lawsuit. Qualcomm has sued Apple for patent violations and is attempting to get a U.S. trade body to block the importation of some iPhones.
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