Chip designer in "very difficult position" says N+1 Singer while reiterating Sell recommendation
Companies: Imagination Technologies Group
Imagination Technologies shares rose 2% on Thursday after the chip designer announced plans to sell two of its core products, MIPS and Ensigma, and updated investors on its dispute with Apple after failing to reach an agreement with the tech giant.
Imagination, which relies heavily on Apple for around half of its revenues, said it had opened a dispute with the company over the use of its technology in the iPhone. While the dispute isn't legal action, it is the contractual process for reaching an agreement.
The UK-listed tech firm also revealed it is selling two of its three major businesses, MIPS - which focuses on the embedded processor markets, and Ensigma - which licenses IP for connectivity in mobile computing, unmanned systems and the IoT.
It appears likely that IMG is selling these assets to generate the cash needed to shore up its balance sheet. The Company's net debt position looks considerably worse now, factoring in the loss of earnings expected from Apple's decision to end the relationship.
N+1 Singer, which has a Sell recommendation on IMG, said something similar in a report out this morning:
"Imagination has also completed a business review and decided to dispose of the MIPS and Ensigma businesses in order to concentrate resources on PowerVR. We expect the sales of these assets to broadly cover the group’s current net debt position."
Singer's added that, while discussions with Apple were ongoing, satisfactory progress to date hadn't been achieved, and that as such Imagination remains in a "very difficult position".
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