There has been very little doubt, in perusing the LinkedIn (LNKD) profiles and job postings over at Apple (NASDAQ:AAPL), that Apple was indeed building its own GPU. Now as a shareholder in Imagination Technologies (OTCPK:IGNMF), this had been a "ticking time-bomb" for which I have been bracing for. However, a press-release from Imagination today seemed to quell these fears. Indeed, it looks as though Apple and Imagination have extended their multi-year GPU and video licensing agreement in today's announcement.
Imagination Is Now An Easier Buy
With the Apple 'risk', there was real concern that a good ~200M+ units would eventually disappear if Apple were to introduce its own GPU, but it seems that - at the very least - Apple probably won't introduce its own GPU to supplant Imagination's GPU anytime soon, allowing Imagination's investors to breathe a sigh of relief.
Now, of course, Imagination's problems aren't all over. For instance, high volume cheap SoC players like MediaTek and RockChip have increasingly been using ARM (NASDAQ:ARMH) GPU cores at the low end. Further, Samsung's (OTC:SSNLF) job postings suggest that it, too, is looking to eventually build its own GPU for the Exynos product line. However, if world-class SoC builder, Apple, has hired a ton of GPU architects and still plans to use Imagination, then it is likely that any fear of an internal Samsung GPU are many years off (although Samsung did use ARM's GPU in its most recent Exynos processor).
It's also tough to ignore that Qualcomm (NASDAQ:QCOM), which uses its own GPU architecture, still owns >50% of the mobile SoC market. Until a player like Intel (NASDAQ:INTC) (which will likely continue to use ImgTec IP in its mass market, mainstream/value smartphone chips) can make some dents in Qualcomm's market share (easier said than done), Imagination won't see the kind of upside that, longer-term, I'd expect in mobile.
Near multi-year lows and with a solid product roadmap that looks as though it will continue to be adopted by Apple for quite some time, I feel very comfortable owning Imagination's shares at under the $3 level. While the challenges are far from over, the most pressing issue has been more or less solved for the foreseeable future. This, alone, is likely to drive some pretty substantial upside to the shares from current, bargain-basement prices with more upside to come as Intel, Broadcom, and other ImgTec licensees start to gain some traction.
Disclosure: I am long IGNMF, INTC, BRCM. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.