Imagination buys Caustic in graphics chip push

Imagination Technologies, the Hertfordshire-based group that designs chips for Apple’s iPad, has made its second US acquisition in a month as it takes a bet on rapid growth in 3D graphics for smartphones.

The chip designer will pay $27m (£17.1m) cash for Caustic Graphics. The deal comes less than a month after Imagination agreed a deal to buy US-based HelloSoft for up to $47m to assist its push into video and voice-over internet protocol products and expand its WiFi offering.

Hossein Yassaie, chief executive, said Imagination was attracted by Caustic’s patented ray-tracing technology, which creates cinema quality 3D images.

Imagination will put the “disruptive technology” into graphics processing chips that will initially be used in television and games consoles but eventually also in smartphones.

News of the acquisition came as Imagination reported that pre-tax profits more than doubled to £7.7m on revenues up 16 per cent at £44m in the six months to the end of October.

Imagination said its partners, which include companies such as Intel, Sony and Samsung, shipped more than 107m chips during the first half of the year compared with 54m previously. On the back of that performance, the group is forecasting that more than 200m of its chips will be shipped for the full year.

Royalty revenues rose 69 per cent to £18.7m and revenue from licensing rose 24 per cent to £11.6m.

However, Imagination’s Pure radio manufacturing business slipped into the red in the first half. Mr Yassaie said that retailers and consumers had been cautious in the first quarter but there were signs of a pick-up in demand.

● FT Comment

Pure took a little bit of the shine off what were otherwise excellent results. But shareholders such as Apple and Intel are not buying into Imagination for its sleek digital radios but for its strong stake in the graphics chip design business. Investors and analysts remain torn over the merits of Imagination’s two recent acquisitions, both of which have early stage technology. However, Mr Yassaie has a habit of being proved right when it comes to predicting trends. Imagination’s shares, which have risen more than 50 per cent since the start of the year, jumped 20½p, or 5.7 per cent, to 380p on Tuesday, putting them on a multiple of 30 times 2012 earnings. That is a discount to bigger UK rival Arm but probably a fair valuation.

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