Imagination’s designs on a London listing face hurdles
Imagination Technologies was in a fight for its life. The microchip designer had shocked the London Stock Exchange when it revealed that Apple would stop using its technology in the iPhone.
Shares in the Hertfordshire microchip company fell by more than 60pc in a single day, forcing a bruising strategic review and ultimately, a delisting.
The company was scooped up by Canyon Bridge Partners, a Chinese-funded private equity outfit that claimed it could turn Imagination around. Critics of the 2017 deal feared that Beijing had gained control of hi-tech know-how on the cheap.
Nevertheless in the years since, the company appeared to get back on track.
After intervention from MPs, it saw off an attempted boardroom coup that would have appointed four Chinese directors. Then last year it signed a new deal with Apple said to be worth as much as $50m per year (Imagination disputes this figure).
The company has launched a new strategy to challenge its old rival, Arm Holdings. Now Imagination is seeking to return to the London stock market with bankers at Lazard advising.
The turnaround has not gone unnoticed. Imagination has also received approaches from private equity, including the US fund Francisco Partners, The Telegraph can reveal.
Yet while the outside world sees a brighter future for Imagination, its troubles are not entirely behind it. Questions over its ownership and concerns over deals the company has signed with Chinese chip makers persist, and it has also endured an exodus of engineering talent to rivals.
As many as 30 staff have left the company. Five members of its top engineering leadership have quit so far in 2021, going to rivals AMD and Intel, as well as its chief of staff.
“Once you lose the core of a company, it is almost impossible to come back,” says a former executive.
An Imagination spokesman said suggestions that staff have been unsettled were incorrect.
“We have made significant changes to strengthen our governance with the appointment of independent non-executive directors,” adding the claims were “not in any way representative of the company we are today.”
Founded 36 years ago, Imagination, which employs 900 people, develops and licences designs for graphics chips, most notably ending up in Apple’s iPhones and iPads.
Listed for close to two decades, crisis hit after it spurned an acquisition attempt by Apple, which cancelled its critical contract. In the ensuing crisis, Canyon Bridge, led by US semiconductor veteran Ray Bingham, snapped it up for £550m.
Its stewardship has proved controversial. The fund which owns Imagination is 99pc controlled by China Reform, which is in turn funded by the Chinese state. The Trump administration forced Imagination to sell its US business when Canyon Bridge took control.
Bingham insists Canyon Bridge is independent and is owned by a three-man partnership. China Reform “have no say in the company’s governance”, he told MPs.
Yet in April 2020, as the pandemic struck Britain, China Reform was agitating for more control. Imagination held an emergency board meeting over the appointment of four representatives from the Chinese fund. Ron Black, its chief executive, blew the whistle to MPs and ministers.
Within days he was out. Black says he was sacked; Imagination says he resigned. He is suing the company over his exit. However, an intervention by Oliver Dowden meant Canyon Bridge put a hold on the boardroom coup.
But while the public spat ended there, Imagination has since endured a flurry of leadership departures. Its technology chief left last September. In February, its chief of staff departed.
Over the summer, five top engineers departed, including a team to AMD in Australia. Imagination has since closed the office. The company admitted to “churn” in the industry, but said it had secured hires from key rivals.
Since its takeover, the company has made no secret of its plans to boost its growth prospects by mining China’s fast-growing chip sector for deals for its graphics technology. Some of these deals have seen it licencing its technology to state-backed Chinese technology companies.
In one instance, it is understood to have signed a substantial deal, worth in the region of $20m, with Birentech, a newly founded Chinese graphics chip maker. The company’s main backers include Chinese-state backed funds, such as the Russian China Investment Fund, CDB Equipment Manufacturing, and Guosheng Capital.
Some executives have grown disillusioned at these China tie-ups. One executive allegedly left the business citing “dodgy China deals for dimes”, according to a text message.
An Imagination Technologies spokesman dismissed this characterisation as “wholly inaccurate”.
“Like all other intellectual property vendors we licence our technology and work with our customers to ensure that they become successful. All deals we do in China are done at fair market value and comparable with deals we do elsewhere.”
The spokesman added its deals allowed it to protect its intellectual property.
With a potential float on the horizon, analysts say the public troubles of Imagination could be outweighed by its improving business performance. “I think that Imagination has made progress in turning around its business since 2018,” says Anshel Sag, of Moor Insights and Strategy.
Among its new plans is launching a technology known as RISC-V, a cheaper rival to Arm’s microprocessor tools. It is increasingly sought after by Chinese clients as its “open source” licensing puts it beyond the reach of US export controls.
Sag adds: “RISC-V does appear to be a real challenger to Arm.” He notes Arm’s acquisition for $40bn by Nvidia could prompt customers to look for alternatives, such as Imagination.
Before it can dream that big however, Imagination must calculate a path through yet more instability as it goes up for sale again.
