In early 2017, Apple (NASDAQ:AAPL) dropped a bombshell on graphics intellectual property (IP) supplier Imagination Technologies, telling the company that it would stop using its technology within two years. Apple reportedly told Imagination as early as 2015 that it would transition away from using its IP, while the Mac maker also actively poached graphics engineers from Imagination.

Apple represented over half of all licensing revenue at the time, so losing that business was essentially a death knell for Imagination. The U.K.-based company subsequently put itself up for sale and was acquiredby Canyon Bridge for around $725 million. In a surprise announcement to kick off the New Year, Apple and Imagination are getting back together.

Apple Arcade games

Image source: Apple.

A new deal

The companies did not provide much detail regarding the new agreement, merely saying that Apple and Imagination have reached a "new multi-year license agreement under which Apple has access to a wider range of Imagination's intellectual property in exchange for license fees." The deal replaces the older license agreement from 2014.

Imagination had initially expressed doubts in 2017 that Apple could design its own GPU without infringing on Imagination's IP, so it must have come as quite a surprise when a few months later, Apple introduced its first Apple-designed GPU that was incorporated into the A11 Bionic chip inside the iPhone X. Apple continued to make progress with its in-house graphics technology, with the A12 Bionic and A13 Bionic processors boasting considerable graphics performance gains.

It's unclear why Apple has inked a new deal with Imagination after previously being so confident that it didn't need the company's IP any longer. Anandtech notes that Apple's custom GPU designs were based on Imagination's architecture, which includes a handful of patented features.

Is this all about ray tracing?

Perhaps more importantly, some of Imagination's newer IP revolves around ray tracing, a next-generation graphics technology that other computer-graphics companies are also pursuing. Ray tracing entails rendering by simulating and tracking how light actually travels in real life to the human eye. The end result is extremely photo-realistic 3D renderings.

Imagination had said in May that it would start licensing out its ray tracing tech, which offers more efficient performance for mobile applications -- including augmented reality (AR) -- compared to existing solutions that are optimized for PCs and gaming consoles.

Apple CEO Tim Cook has talked up the transformative potential of AR for years, and the company is expected to launch an AR headset within a couple of years. At the same time, mobile gaming is a bigger industry than all other formats combined. The company recently launched Apple Arcade, a subscription service that includes unlimited access to a large and growing catalog of premium titles.

Those strategies will require a lot of graphics technology, and it seems Imagination has some that Apple needs.