This article is part of our Rising Stars Portfolios Series.
In this video, Fool analyst Eric Bleeker discusses one of the companies on his short watchlist: Britain's Imagination Technologies, which has found tremendous success licensing technology used to create graphics processors in mobile devices. Imagination has dominated the mobile graphics niche, licensing its designs to a powerful group of companies including Apple (Nasdaq: AAPL ) , Samsung, Texas Instruments (NYSE: TXN ) , and Motorola (NYSE: MOT ) . But now, an up-and-coming rival threatens to steal its thunder.
In the complex field of mobile chipmaking, investors might be more familiar with ARM Holdings (Nasdaq: ARMH ) . It follows a similar model to Imagination Technologies, but until recently, it's focused instead on the central processor at the core of mobile devices. However, ARM is now getting more aggressive in graphics, releasing its new "Mali" GPU, which represents a significant improvement over its previous graphics efforts. Perhaps more tellingly, ARM included support for programming that allows any software (not just games) to make better use of the graphics processor.
While Intel's (Nasdaq: INTC ) difficulties in unseating NVIDIA (Nasdaq: NVDA ) point to the difficulty in transitioning from central processors to the very specialized world of graphics processors, ARM's embrace of graphics for general computing show that it's taking a different route from Intel's failed attempts to crack the graphics market. Imagination Technologies might have a technology lead now, but ARM's leadership position in the mobile world should allow it to steal customers as it closes the technology gap with Imagination.
Bleeker's not opening a short position in Imagination at this time; he wants to continue learning more about the company's technologies and position. Also, Imagination's share price has recently gotten clobbered after reports surfaced that Samsung favored ARM's next-generation graphics processor instead. However, he's keeping Imagination on his watchlist for now, and suggests investors do the same.
See why Bleeker thinks Imagination might eventually make a good short: