Contract dispute: Apple fires back at supplier

The graphics provider, Imagination Technologies Group's stock collapsed more than 60%

When the iPhone supplier Imagination Technologies Group announced in April that Apple would no longer be using its graphics technology, investors in the small UK company were shocked. The graphics provider’s stock collapsed more than 60 per cent.

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 UK 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 said Imagination had known for longer that the relationship was ending. “We began working with Imagination in 2007 and stopped accepting new IP from them in 2015,” Apple said. “After lengthy discussions we advised them on February 9 that we expected to wind down our licensing agreement since we need unique and differentiating IP for our products. We valued our past relationship and wanted to give them as much notice as possible to adapt their future plans.”

Imagination’s shares fell as much as 8 per cent in London trading. The company said it disclosed the change of its relationship with Apple on April 3 “when it had sufficient clarity on Apple’s position.” Imagination said it struck a multi-year licensing agreement with Apple in February 2014 that carried confidentiality clauses preventing it from commenting. “Imagination has commercial discussions all the time with all of its customers, including Apple,” Imagination said.

The timing of Imagination’s disclosure about losing Apple’s business will “almost certainly” be reviewed by government regulators, said Tim Aron, a barrister who specialises in financial law. “The overriding obligation is to inform the public as soon as possible in the event it holds information that may be relevant to the share price,” Aron said.

Apple’s accusations escalate a dispute with a supplier that has relied on its business for about 50 per cent of its revenue. The two companies have worked together since the first iPhone was released in 2007, but now Apple is developing new graphics technology by itself.

Bloomberg