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After clash with Apple, key supplier Imagination Technologies says it has started a 'dispute resolution procedure'

  • Imagination Technologies says it has started a "dispute resolution procedure" with Apple after the pair clashed in April.
  • Imagination is a key supplier of graphics processing units (GPU) for Apple products.
  • In April, Apple said that it is developing its own graphics design and will be "reducing its future reliance on Imagination's technology" over the next 15 to 24 months.

Imagination Technologies, a key supplier of components for Apple products, said Thursday that it's beginning a "dispute resolution procedure" with the U.S. technology giant after the two clashed earlier this year.

The U.K. firm design graphics processing units (GPU), which are vital components in Apple products allowing high-quality images on its retina displays.

Last month, Apple said that it's developing its own "independent graphics design" and will be "reducing its future reliance on Imagination's technology" over the next 15 to 24 months.

Apple iPhone
Regis Duvignau | Reuters

Shares of Imagination Technologies plunged after the announcement and are down over 61 percent year-to-date.

Imagination said it's been in discussions with Apple regarding its commercial relationship but "has been unable to make satisfactory progress with Apple to date regarding alternative commercial arrangements for the current licence and royalty agreement."

"Imagination has therefore commenced the dispute resolution procedure under the licence agreement with a view to reaching an agreement through a more structured process," the company said in a statement.

"Imagination has reserved all its rights in respect of Apple's unauthorized use of Imagination's confidential information and Imagination's intellectual property rights."

Shares of Imagination were trading marginally lower on Thursday morning.

Imagination said it was unable to give any more information about the logistics of the dispute resolution procedure when contacted by CNBC. Apple was not available for comment at the time of publication.

Analysts said that the messaging from Imagination shows that Apple is unlikely to buy the company — a path that was at one point potentially on the cards.

"A dispute resolution process has been initiated with Apple, which seemingly removes any optionality around alternative commercial arrangements being struck, or that Apple is playing some form of Machiavellian game for a price cut or to buy PowerVR at a knock-down price," Investec analyst Roger Phillips said in a note on Thursday.

"The comment over 'rights being reserved' suggests the allegation of patent infringement still hangs in the air. The problem for IMG is whether it has the time and resources to pursue this avenue; this may end up being optionality for an eventual buyer of the GPU business."

PowerVR is Imagination's core graphics processing technology.

Apple's comments in April were a large blow for Imagination as the U.S. firm accounts for the majority of the British company's revenue. In April, when the two organization's clashed, Imagination noted that Apple focusing on making its graphics chips could breach the duo's current licensing agreement.

"Apple has not presented any evidence to substantiate its assertion that it will no longer require Imagination's technology, without violating Imagination's patents, intellectual property and confidential information," Imagination said in a press release in April.

"This evidence has been requested by Imagination but Apple has declined to provide it."

Focus on GPU

Imagination also said Thursday that it is looking to sell its embedded processor business MIPS, and mobile computing chip segment called Ensigma. It will focus on PowerVR.

"With continued investment, the Group considers PowerVR to be well placed in mobile, automotive, digital TV/set top boxes and the rapidly emerging AR/VR (augmented reality/ virtual reality) market and having the potential to exploit investments for artificial intelligence in the medium term. Imagination will continue to make the appropriate investments in the PowerVR business," the company said.