Last week, Apple informed British company Imagination Technologies that it would stop using the company's technology in less than two years. Immediately, as the news hit the wires, shares of Imagination Technology were down 70% on the London Stock Exchange.
Imagination owns and licenses the technology that powers the graphics on iPhone products, including the iPhones, iPads, iPods and watches.
Imagination released a statement saying Apple is "working on a separate, independent graphics designs in order to control its products."
On the flip side, "Apple has not presented any evidence to substantiate its assertion that it will no longer require Imagination's technology, without violating Imagination's patents, intellectual property and confidential information," the company said.
Management at Imagination can only hope that statement turns out to be true, although I would not be bold enough to bet against Apple, the company. (I have bet against its shares plenty of times, but that's a different story.)
Apple reportedly accounts for at least half of Imagination Technology's revenues.
So, just like that, Imagination Technology went from a market capitalization of a little under a billion to less than $350 million.
This morning, Dialog Semiconductor is feeling the hit from potentially losing out on Apple's business in the near future.
Early this morning, a European research firm, Bankhaus Lampe, put out a note stating that Apple is developing its own custom power management chip for the iPhone and iPad line of products to replace a PMIC component currently supplied by Frankfurt-based Dialog Semiconductor (DLG). According to the report, Apple will use its own component in the product line as early as 2019.
Last year, Apple accounted for almost 70% of Dialog's revenues, and according to the analyst at Bankhaus, Apple already has 80 engineers working on its own power management chip technology.
Shares of Dialog were down almost 35% in Frankfurt but have since recovered some and are down about 20%.
As chatter picks up about Apple's new iPhone 8/X being priced at $1,000 per handset or more, this build-your-own approach is critical if the company wants to keep its customer base growing and not start pricing its customers out as the cost of technology increases going forward.
In addition, shares of Dialog could present a great buy if this turns out to be idle chatter or if Apple is unable to come up with its own competing chips.
Words to the wise.
Shares of Apple closed at $143.02 on April 10, 2017.
Shares of Dialog are down about 18% at just under 40 euros per share.
(Long aapl, long and short aapl options)
