Imagination Technologies surges on Apple deal

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Shares in the microchip designer jump as much as 20pc on a licensing agreement with the US tech giant

Imagination Technologies (Other OTC: IGNMF - news) has extended a deal with Apple (NasdaqGS: AAPL - news) , allaying fears the British microchip designer would lose its biggest customer.

Shares in the FTSE 250 group surged as much as 20.7pc on Thursday after the company announced it had extended a “multi-year” licensing agreement with the iPhone and iPad maker that will generate royalty revenues and licence fees for Imagination.

The deal gives Apple access to Imagination’s graphics and video intellectual property and ended speculation the US company would abandon the British group and turn to rival ARM Holdings (LSE: ARM.L - news) or use its own technology.

“This announcement serves to steady any concerns investors may have had regarding Apple’s possible design out of Imagination’s graphics in favour of either ARM or an in-house play,” said Jefferies analyst Lee Simpson.

“There has been nothing specific stated in the release as to where the IP will be used, but it’s fair to assume for now that this continues to be used across Apple’s portable iDevices.”

The statement marked the first time that Imagination had publicly disclosed that Apple, which is a shareholder in the chip designer, used its video IP, Mr Simpson added.

Apple accounts for about 30pc of Imagination’s revenues and is its biggest customer, according to Eoin Lambe at Liberum Capital. News of the agreement was “reassuring”, he said, adding that it “supports Imagination's guidance for a sharp rebound in licensing revenue in [the second-half of the 2014 financial year]”.

Until today, shares in the British group had fallen almost 70pc amid growing concern that Imagination was losing market share to competitors such as Cambridge (SES: E1:J91U.SI - news) -based ARM.

According to financial information firm Markit, Imagination is the most heavily-shorted company in the FTSE 250 with about 13pc of its shares on loan. A so-called "short squeeze" of those traders betting against the group would also have pushed the shares higher today.

Imagination fell sharply on the release of its first-half results in December, when the company pointed towards a slow-down in the high-end smartphone market.