Imagination Technologies Group plc Sharpens Focus on Graphics

Image source: Imagination Technologies. 

Semiconductor IP vendor Imagination Technologies (NASDAQOTH: IGNMF), known primarily for its graphics processors, recently updated investors on its strategy vis-a-vis its PowerVR graphics processor intellectual property.

The company's mobile-oriented graphics processors are well known for being best in class, particularly for high-end mobile applications. Imagination's highest-profile graphics customer is Apple (AAPL 3.21%), a company known for including very high end graphics capabilities in its home-grown A-series system-on-chip designs.

However, Imagination has struggled in recent years as low-end and mid-range smartphones have increasingly adopted graphics technology from much larger peer ARM Holdings (ARMH +0.00%). Qualcomm (QCOM 2.23%) uses its own home-grown graphics processor family, known as Adreno.

In fact, ARM Holdings claimed in a recent investor presentation that its Mali family of graphics intellectual property (IP) now commands 50% unit share in smartphones, making it the industry's most popular graphics processor family.

In announcing its own financial results, Imagination Technologies updated investors on its strategy in both mobile graphics as well as in other markets.

First, some background

Imagination included the following chart illustrating the relative market share positions of the major graphics IP suppliers in the mobile/smartphone market:

Image source: Imagination Technologies investor presentation.

It's clear from this image that Imagination's position at the high end of the market is quite strong, no doubt due in large part to the fact that Apple uses Imagination's IP exclusively in its popular iPhone and iPad product lines. Unfortunately, the data that Imagination cites calls for the high end of the market to not grow all that much through 2020.

The low-end and mid-range portions of the market, however, are growing faster than the high end is. However, it is in these segments that Imagination's weakness becomes clear: It has just 7% of the sizable mid-range market and negligible share of the low-end market (although the revenue opportunity there seems quite small).

The strategy that the company outlined, then, is quite sensible.

Attack the mid tier and defend the high end

Imagination says that it aims to do two things. The first is to try to boost its share in the mid range of the market with its upcoming Series 8XE family of graphics cores. The second is to try to defend its leadership position at the high end of the market with its upcoming Series 8XT family of graphics cores.

Imagination hasn't disclosed details of the Series 8XT family of graphics cores, but I'm sure we'll learn more about them soon. Perhaps Apple will adopt the Series 8XT in its upcoming A10/A10X processors later this year or early next year?

Imagination has, however, talked about the Series 8XE and has, unsurprisingly, talked up area and efficiency benefits relative to the competition. The real litmus test, though, will be how broadly the technology is adopted by the important system-on-chip makers.

How does Imagination gain share?

Remember that Imagination licenses IP; it doesn't sell chips into phones directly. This means that major system-on-chip manufacturers need to choose to integrate Imagination's graphics processors over competing processors.

Imagination is unlikely to convince Qualcomm to ditch its home-grown Adreno architecture for PowerVR, so the company will primarily need to grab share away from ARM at system-on-chip makers that don't use their own graphics IP such as MediaTek, Spreadtrum, and HiSilicon.

Can Imagination pull it off? Only time will tell.