Imagination Technologies lost more than half its market value in a single day this week when the chip designer revealed that Apple, its largest customer, was developing its own version of the graphical processing units in which the UK-based group has specialised.
Apple’s initiative to make a GPU, however, should not have come as such as surprise to investors. It follows several months of intensive recruitment by the iPhone maker from Imagination’s ranks, while hints have leaked out about its plans in the area for several years.
Furthermore, Apple’s behaviour is entirely consistent with its growing portfolio of custom-made silicon, from the iPhone’s A-series to the W1 wireless chip in its latest AirPods headphones as well as its strategy of taking full control of technologies that lie at the heart of its products — not to mention its often ruthless negotiating tactics with suppliers.
“Anywhere where Apple can trim cost and squeeze suppliers, they have a track record of doing so,” says Geoff Blaber, analyst at CCS Insight. “But the GPU is so strategic long-term that there’s something else at play here.”
That significance goes beyond simply improving the quality of the computer graphics in future iPhones and iPads.
Because the chip’s design is more suited to single, resource-intensive tasks than a general-purpose central processing unit, the GPU has become the go-to processor for researchers in artificial intelligence applications, from face recognition in photos to self-driving cars.
Apple’s more cautious approach to handling personal information means it tries to do more of that AI processing on the device itself, rather than offloading the data analysis to the cloud as rivals such as Google do, making a powerful GPU all the more important to its iPhones.
Such processors are also a key enabler of virtual and augmented reality, a nascent field into which Facebook, Alphabet, Microsoft and Apple have already invested billions of dollars between them. Apple’s move into augmented reality is expected to begin with the next iPhone in September, with its secretive development of AR glasses also under way.
“While on the surface this is about phones, the fact Apple are leaving them means Imagination is out of everything that Apple does in future,” says Ben Bajarin, analyst at Creative Strategies. “The GPU is front and centre as the most important component for all the interesting things they want to do in the future.”
Widespread optimism about the potential for graphics processors can be seen in the surging share price of Nvidia, a pioneer in the sector. Nvidia’s technology can be found in Tesla’s autonomous vehicles and Google’s data centres, as well as millions of videogamers’ PCs. Its stock has tripled in the past year alone.
However, Nvidia has made limited headway in smartphones, where Imagination’s main competitors include Arm’s Mali series and Qualcomm.
While Imagination on Monday said that its products would be phased out from iPhones within “15 months to two years’ time”, Apple’s move to enter its market has been several years in the making. It began recruiting for what job ads at the time described as its “GPU team” in 2013, when it also hired several AMD graphics engineers amid layoffs at the chipmaker.
Since then, Apple’s in-house silicon team, led by former Intel executive Johny Srouji, has gained huge acclaim in the industry. The severity of Imagination investors’ reaction to the Apple news reflects “how credible Apple is in semiconductors”, says Patrick Moorhead of Moor Insights and Strategy. “Apple happens to be really good at chips. People are expecting it could be very successful.”
Apple itself acknowledged the importance of its chipmaking unit in late 2015 when it promoted Mr Srouji to its executive team. Its competitors have followed its example, with Samsung, Huawei, Xiaomi, Lenovo and ZTE all now releasing or developing their own mobile chips.
“It’s becoming a fashion statement among smartphone manufacturers to say you’re developing your own silicon,” says Mr Blaber at CCS Insight. “But unless you have huge scale, it’s extraordinarily difficult. The investment required is substantial.”
While the expertise required to design custom chips is scarce, Apple has no problem hiring the right people, according to Mr Moorhead. “They can hire some of the best out there, if not the best,” he says.
Dozens of former Imagination managers and engineers now work at Apple, many of them in the UK. They include John Metcalfe, who worked at Imagination for more than 15 years, most recently as its chief operating officer, before joining Apple as a senior director last July.
That recruitment drive continues, with several open positions on Apple’s job site enticing London-based hardware engineers to apply for a “career defining opportunity to get in at the ground floor as we build our UK Design Centre”. Other GPU-related positions are being advertised in Austin, Texas; Orlando, Florida; and Herzliya, Israel, as well as in Silicon Valley itself.
Finding the right talent will be vital, Mr Moorhead says, as developing a graphics processor is among the most complicated kinds of chips to get right. “Intel has tried to do a high-end GPU for a long time and they’ve had some serious struggles with it.”
For Apple to succeed, it will also need to secure intellectual property rights, says Mr Bajarin. “It’s a pretty well-covered field.” That could mean Apple strikes a new licensing deal with Arm, he suggests.
Imagination, though, is hoping that it can revive its shares by striking a royalty deal with Apple — even if it has to go through the courts to get one.
“Imagination believes that it would be extremely challenging to design a brand new GPU architecture from basics without infringing its intellectual property rights,” the UK company said on Monday.
