Apple to build its own graphics chips, crushing its supplier

Posted Apr 3, 2017 by James Walker
Apple will build its own graphics processors for upcoming mobile devices. The company's current supplier, Imagination Technologies, has seen its stock price fall by 70 percent in the wake of the announcement. The chips will be ready in two years.
Products on display at an Apple store in San Francisco  California.
Products on display at an Apple store in San Francisco, California.
Justin Sullivan, Getty/AFP/File
Apple already designs its own A-series processors for use in the iPhone, iPad, iPod and other products. They incorporate graphics processors (GPU) designs licensed from UK-based Imagination Technologies, an arrangement Apple has been using for almost two decades.
Apple is now set to disrupt the industry in an unprecedented way. Imagination announced today that Apple will not be using its intellectual property beyond the next 15 months to two years' time. Future products will use a completely custom graphics chip built in-house by Apple.
"Apple has used Imagination’s technology and intellectual property for many years. It has formed the basis of Graphics Processor Units ('GPUs') in Apple’s phones, tablets, iPods, TVs and watches," said Imagination. "Apple has asserted that it has been working on a separate, independent graphics design in order to control its products and will be reducing its future reliance on Imagination’s technology."
While Apple is clearly intending to launch its own silicon, Imagination has doubts over whether this will be possible. It said it would be "extremely challenging" for Apple to create a GPU that does not infringe on its existing intellectual property rights. As such, the two companies are already back in contact discussing new arrangements. Imagination and Apple are almost certain to end up working together in some form, irrespective of whether new iPhones include Imagination GPUs.
This hasn't stopped Imagination's shares from plummeting during the day. Apple has been Imagination's biggest customer for years and accounts for around half of its revenue. The sudden announcement that the money could be gone within two years has caused Imagination's market value to fall by around 70%. It's now trading at about £250m, down from £765m when markets opened on Monday morning.
The news is a significant blow to Imagination. The company has struggled to reach more customers beyond Apple. Although around 50% of all smartphones include its GPU designs, the majority of these are iPhone handsets. ARM, the company that produces processor designs for firms including Qualcomm, has its own GPU architecture.
Imagination recently won a contract with emerging processor manufacturer MediaTek to provide graphics capabilities for its new chipset. While significant, it doesn't offset the impact of the loss of Apple's custom. Apple has refused to detail its new GPU or state whether it will draw on Imagination property. Until more is known about the chip, Imagination's investors could be left assuming the worst: Apple succeeds in innovating from scratch and severs its ties with Imagination completely.
Apple is also building its own desktop graphics silicon for Mac processors that will reduce the company's existing reliance on Intel chips. The company seems to be moving to build everything in-house, cutting outsourcing to a minimum. Apple has previously discussed purchasing Imagination but is now working on chips without external input. The company is still Imagination Technologies' fourth-largest shareholder.