June 22, 2011 8:26 pm

Imagination forecasts 1bn chip sales

Imagination Technologies, which designs microchips used in Apple’s iPad and iPhone, has doubled its forecast for chip shipments. By 2016, the company expects more than 1bn will be shipped a year, up from a previous forecast of 500m.

The Hertfordshire-based company, which designs the graphics chips that power the display screens of smartphones and tablet computers, on Wednesday said that 245m chips using its blueprints had been shipped in the year to the end of April.

This is nearly double the number last year and has prompted Imagination to revise sharply its medium-term forecasts.

“Our licensing pipeline is very strong so I think this is a reasonable goal,” said Hossein Yassaie, chief executive. “When we set a 200m unit target in 2008 we were only shipping 10m units and a lot of analysts thought I was mad. But we have passed that now.”

Chips for mobile phones account for about 80 per cent of Imagination’s royalties, but Mr Yassaie said that television set-top boxes, tablet computers and cars were increasingly using the technology.

Revenues at the company increased 21 per cent to £98m, while pre-tax profits rose more than 60 per cent to £16.4m. Earnings per share were up 32 per cent at 7.4p.

Some analysts were disappointed, however, that the average royalties Imagination gets from each chip was only 27 cents compared with market expectations of 30 cents.

In spite of strong growth for smartphone and tablet sales, Imagination faces increasing competition from companies such as Qualcomm, Nvidia and Arm, which will keep royalty rates under pressure, said Adrien Bommelaer, analyst at Matrix Corporate Capital.

Imagination’s results were also held back by its unprofitable Pure Radio division, which makes DAB digital radios. Revenues at the unit fell 16 per cent to £28.2m and operating losses widened to £3.8m.

However, Mr Yassaie said he was not thinking of selling the Pure business, which he sees as a useful showcase for Imagination’s technology products.

Shares in Imagination, which have gained nearly 40 per cent over the past year, fell 18½p to 414½p on Wednesday.

FT Comment

Imagination’s share price has grown more than sevenfold in the past five years, underpinned by a strong relationship with Apple. Apple has a 10 per cent stake in Imagination so the company’s presence in the iPad and iPhone feels secure. However, Apple is not the only gadget maker, and Android-based handsets now have the largest market share in the smartphone category. This gives competitors such as Arm, Qualcomm and Nvidia plenty of opportunity to take market share. Nothing in Imagination’s results looks very wrong, but the shares are now trading at about 40 times earnings expectations, expensive compared with 16 to 18 times for Qualcomm and Nvidia. Mr Yassaie’s long-term forecasts are bullish, but investors shouldn’t over-egg revenue expectations.

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