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Apple to drastically cut royalties to Imagination Technologies, says UBS

  • UBS says Apple will cut royalty payments to Imagination Technologies
  • Imagination Technologies provided graphics chips for iPad, iPod and iPhone
  • Imagination said earlier this month Apple is cutting ties over next two years

UBS said Wednesday that Apple is planning to cut its royalty payments to Imagination Technologies by as much two-thirds over the coming months.

Imagination Technologies said earlier this month that Apple will no longer use its graphics chips in the iPhone, iPad and iPod products. The move resulted in a 71 percent single-day plunge in Imagination's stock.

Citing the UBS report, Reuters said Apple's decision to pay a decreased royalty rate — 10 cents compared with the current 30 cent rate — to Imagination would "become loss-making by fiscal 2019." That move could simply prolong the death of Imagination Technologies. It could also open it up for an outside acquisition.

Apple is reportedly planning to build its own chips instead, though Imagination says any plans to do so could ultimately infringe on its patents. That's where Apple might see an opportunity to swoop in.

Jefferies said earlier this month that Apple could also consider buying Imagination Technologies, especially following the company's quick decline in market value. If Apple does ultimately acquire Imagination, then its decision to cut royalties and suggest that it no longer needs the components could have been a strategic move to decrease the acquisition price.

Apple did not immediately respond to a request for comment.