Why is it so difficult for Imagination to find a buyer after leaving Apple?

Following Apple's previous announcement that it would stop using all of Imagination's graphics technology and terminate patent fee payments in the next 15 to 24 months, Imagination recently issued an announcement expressing its interest in acquiring the company as a whole. After research by the board of directors, it officially opened up and accepted the overall acquisition plan, which means that Imagination has decided to sell.

As soon as the news came out, it immediately caused a strong response in the industry, especially the hope that Chinese companies would make an acquisition. However, with the most likely buyer, Tsinghua Unigroup, officially denying the rumors of acquiring Imagination, the possibility of Imagination finding a "buyer" is very small. What is the reason?

First of all, from a technical perspective, although industry insiders who support mergers and acquisitions believe that Imagination's main business, mobile GPUs, are not inferior to ARM's Mali series and Qualcomm's Adreno series GPUs, and are even slightly better in some aspects, for example, its most representative PowerVR GPU, which is often mentioned in the industry, can run for a long time without frequency reduction, and it was the first to integrate ray tracing technology on the GPU (that is, presenting three-dimensional images on a two-dimensional screen).

But that is a thing of the past. It should be noted that the reason why Imagination's PowerVR series GPUs are so good on smartphones is closely related to Apple's high degree of customization (starting from the A8 of iPhone 6, Apple's team even participated in the customization of GPU architecture), that is, Apple's factors are involved. And from the fact that Imagination itself released a new GPU architecture "PowerVR Furian" 7 years later, its own innovation momentum and strength have obviously slowed down after cooperating with Apple.

It is worth mentioning that in terms of technology-related talents, since Apple has long intended to develop GPU independently, it has been poaching talents from Imagination in the past two years.

According to a report by the well-known technology media BI last year, it can be seen from LinkedIn profiles that at least 25 former Imagination R&D personnel have jumped ship to Apple, and 6 of them are former senior R&D personnel. They include former COO John Metcalfe, who left in June last year and became Apple's vice president in July, as well as former senior design manager, vice president of hardware engineering, senior software engineering manager, etc. It can be said that, to some extent, Imagination's talent has tended to be "hollowed out".

Secondly, from a market perspective, although Imagination's current share in the mobile GPU market is still in a three-way competition with ARM and Qualcomm, it is no longer comparable to the more than 50% market share it occupied several years ago. ARM's market share in mobile GPUs has surpassed Imagination, and Qualcomm is on par with Imagination.

More importantly, more than half of Imagination's current GPU market share (including revenue) comes from Apple, which means that if it loses Apple in the future, Imagination's market share will drop sharply, and it will truly become the "third place" in the mobile GPU market, and the gap with the top two, ARM and Qualcomm, will be quite obvious.

Given that Apple is still the second largest smartphone manufacturer in the world in terms of shipments, it is almost impossible to find a company that can fill the gap left by the loss of Apple, the largest customer, or which company has the ability to do so? Especially since, except for Apple, the top five smartphone manufacturers are already customers of ARM or Qualcomm for GPUs.

In fact, even if Imagination loses Apple, even if Apple makes a slight move, its market performance will be greatly affected. As reflected in the financial report, last year, due to the sluggish performance of Apple's iPhone, Imagination suffered the largest loss in its history of 61.5 million pounds, the former CEO resigned and 200 employees were laid off (accounting for about one-seventh of the company's total employees). So once Imagination loses Apple, it is easy to imagine what kind of financial performance it will have.

It should be added here that after losing Apple, Imagination's lack of AP (application processor CPU) capabilities compared to ARM and Qualcomm in developing new partners is also an obvious shortcoming, that is, it cannot form a synergy today when SoC is popular.

Back then, Imagination acquired MIPS in the hope of turning itself into a licensing company that owns both CPU and GPU architectures in order to compete with ARM. However, due to its own operational and technical limitations, MIPS was ultimately marginalized in the mobile CPU market and failed to synergize with its dominant GPU.

Another fact that partners will not ignore is that the drastic decline in the image of Imagination, which was abandoned by Apple (due to the disappearance of Apple's halo), will also indirectly affect their choice.

Now that we have mentioned CPU, let’s take a look at whether CPU, another business of Imagination besides GPU, has value for the acquired companies.

As we all know, Imagination was acquired for US$60 million when MIPS was declining, but until now, MIPS architecture chips have not been adopted by mobile phone manufacturers, and its market share in mobile CPUs is almost zero. Even Imagination itself said that it is no longer practical for MIPS to take back the mobile phone market from ARM. Unfortunately, MIPS's performance in markets other than mobile phones is not satisfactory. Even in China, only Loongson and Ingenic are still developing chips based on the MIPS architecture, but they are extremely marginalized in the market.

Although some in the industry (including Imagination) claim that MIPS will make a difference in the future IoT market, given that Samsung, Qualcomm and others based on the ARM architecture have already made efforts in the IoT market, and the ecosystem and influence established by the ARM architecture in the mobile market, it is probably self-evident who the partners will ultimately choose.

In summary, we believe that due to Imagination’s own strong substitutability in technology and market competition and its irreplaceability after losing Apple, Imagination’s value to the acquiring companies has shrunk significantly. In addition, given the scale of Imagination’s profits, the huge challenges and profits brought about by this value shrinkage will make it difficult for the acquiring companies to maximize their commercial value in the future (the risks are greater than the opportunities). Therefore, under normal circumstances, it will be difficult for Imagination to find a “buyer”, or it is not wise to acquire Imagination, unless a company wants to be a “sucker”.

As a winner of Toutiao's Qingyun Plan and Baijiahao's Bai+ Plan, the 2019 Baidu Digital Author of the Year, the Baijiahao's Most Popular Author in the Technology Field, the 2019 Sogou Technology and Culture Author, and the 2021 Baijiahao Quarterly Influential Creator, he has won many awards, including the 2013 Sohu Best Industry Media Person, the 2015 China New Media Entrepreneurship Competition Beijing Third Place, the 2015 Guangmang Experience Award, the 2015 China New Media Entrepreneurship Competition Finals Third Place, and the 2018 Baidu Dynamic Annual Powerful Celebrity.