So is Apple the bully of the sector or was Imagination naïve to expose itself in such a way?
Steve Clayton, fund manager of the £504m Hargreaves Lansdown Select funds said the case “perfectly illustrated the dangers of having too much reliance on a single customer”.
Stressing that HL Select funds have never held Imagination Technologies shares, he describes the risk of customer concentration.
“For many years, Apple had used the GPU designs that Imagination Technologies create to power everything from iPods to iPhones.
“Revenues from Apple were about half of the group’s total and so close was the relationship, Apple even had a large stake in Imagination.”
But, as he puts it so clearly, “money talks” and Apple believes it has a better option – i.e. using in-house design instead.
“Imagination’s future profit forecasts were a lot lower than the revenues Apple were paying them.
“In other words, not only was Apple far and away the largest customer, their income was needed to offset substantial losses made elsewhere in the group.”
No surprise then at their collapsing share price.
Clayton adds: “We prefer businesses without this sort of dependency.
“The answer to the question ‘Will your largest customer still be with you in two years’ time?’ is ideally ‘Doesn’t really matter, we’ve got lots more to trade with’.”
