March 12, 2013 -- Imagination Technologies Group plc ('Imagination', LSE: IMG), a leading multimedia, communications and processor technology company, is today issuing its Interim Management Statement for the period from 1 November 2012 to 11 March 2013.
The momentum in the business has continued strongly, following another robust performance in the first half of the financial year.
Royalty revenue growth has continued to be strong, in line with our expectations. The unit volume has continued to grow significantly, driven by new product launches from a number of our customers, the traditional holiday period uplift, and continuing momentum across the customer base. The average royalty rate has maintained the level achieved in the first half of the year.
During the recent months, including at the CES (Consumer Electronics Show) and MWC (Mobile World Congress) industry events, several of our partners have announced important new SoCs and/or end-user products incorporating our IP. We can now confirm that Samsung's Exynos 5410 'Octa' incorporates Imagination's PowerVR SGX544MP core. Other significant recent announcements included SoCs from Allwinner, Altair, Ceragon, Ingenic, Intel, LG, MediaTek, Renesas, SiS, ST and TI, which will contribute to future shipments. Significantly, in addition to continuing growth in smartphone and tablet design wins, we now have major brands including LG and Sony shipping new smart TVs with our graphics technologies.
Licensing activity remains steady with extensive on-going interest and activities in all our technologies. However, in addition to the general macro-economic uncertainty and the usual project timing, there are a number of factors that are impacting the timing of license closure including a number of our partners undergoing structural changes, particularly in Japan.
The acquisition of MIPS Technologies, Inc. ("MIPS") was completed on 7 February 2013.
The Pure business continues to evolve, albeit in a trading environment that continues to be tough in the second half.
PowerVR Graphics – The PowerVR graphics processor (GPU) family continues to lead the market in technological capability, roadmap strength and ecosystem, and remains by far the most adopted and shipped technology of its kind. Many designs across PowerVR Series5/5XT and our latest Series6 family are at different stages of delivery, with increasing numbers of both Series5XT and initial Series6 based SoCs entering production and contributing to volume ramp-up.
The Series6 IP core family expanded to six members, with the recently launched G6100 offering the smallest and most efficient GPU with OpenGL ES 3.0 compatibility. As well as enabling the full market adoption of OpenGL ES 3.0 with the highly scalable PowerVR Series6, we have this quarter released a set of advanced API extensions for PowerVR Series5XT, giving application processors using the technology access to some of the features of the latest APIs.
PowerVR Video – Our PowerVR video decode and encode processor (VPU) family supports the latest and emerging formats and is already the leading video IP family by volume shipped, while continuing to see strong volume growth. In keeping with our strategy of providing leading-edge and market-driving technologies to our customers, we have launched the new PowerVR Series4 video processor IP cores, featuring full support for 4K displays, 10-bit colour and improved performance. Programmes are already in place developing support for upcoming standards such as HEVC/H.265.
PowerVR Vision - We are well advanced in developing camera-related IP cores that address important and growing markets and exploit the technological synergies with our graphics and video IP cores.
Ensigma Communications – Our Ensigma programmable radio processor (RPU) family supporting both multi-standard broadcast receivers and Wi-Fi and Bluetooth connectivity, is becoming increasingly relevant to mainstream markets and has been designed into a growing number of chips and products.
Already we have partner devices in volume shipment using this technology for digital radio and Wi-Fi connectivity. We expect other partner devices, including from top-tier partners, targeting multi-standard/global TV or connectivity markets to be steadily added.
MIPS CPUs – Our family of CPU processors comprise a comprehensive portfolio of low-power, high-performance embedded microprocessor cores. These range from high-end applications processors down to extremely small, deeply embedded microcontrollers, and power billions of products around the globe. We see continuing demand for the classic MIPS cores and we are now seeing significant licensing interest in the new generation of MIPS Aptiv cores. The Aptiv generation is comprised of three new processor families covering entry-level, mid-range, and high-end processor core solutions covering a wide variety of application requirements. Each family delivers top CoreMark performance in its class, without sacrificing efficiency in terms of silicon and power.
Following the acquisition of MIPS, we have begun to stabilise and strengthen MIPS traditional markets including networking, infrastructure, home entertainment and servers and expand our overall presence within them. Additionally, the growth of open source operating systems such as Android, the trend towards heterogeneous systems/standards, and the advent of technologies that enable the efficient portability of applications across a range of CPU processors, will further drive deployment of MIPS across a wider range of markets.
HelloSoft V.VoIP - Our HelloSoft family of video and voice over IP (V.VoIP) products, including platform agnostic software development kits (SDKs), continues to get stronger and more comprehensive. This is resulting in a number of important engagements for these technologies with both operators and mobile phone OEMs, including the first deployments of our Voice over LTE (VoLTE) technology on ZTE handsets on the MetroPCS network in Dallas, USA. The arrival of 4G/Long Term Evolution (LTE) networks is creating increased interest and demand for VoLTE, an area where HelloSoft products are notably strong.
Caustic Professional – Our Visualizer family of software plugins for major industry tools such as Autodesk Maya and 3dsMax are now entering production, and the first third-party ISVs (Independent Software Vendors) are now supporting our OpenRL ray-tracing technology. Caustic R2100 and R2500 ray-tracing boards for PCs are also now shipping into the professional graphics market, and have been well received by the media and professionals.
Initial customer engagements have been very positive, with customers being fully supportive of the rationale for the transaction. In addition to our attention on an effective integration, we are applying a bigger focus on licensing both the classic and the new Aptiv MIPS cores, and have started the process for putting in place a medium- to long-term roadmap.
MIPS is being fully integrated into Imagination to ensure the business is managed effectively and the expected cost synergies are realised. The integration, which is progressing well, has resulted in the planned departure of a small number of staff mostly in the corporate functions and senior management. The R&D team has not been affected by these changes and we expect the combination of the MIPS R&D team with the existing Imagination CPU R&D team to create a world-class CPU IP design function.
The combination of the planned staff departures and the delisting of MIPS are expected to reduce the cost base by approximately $10m annually. The one-off costs to achieve these savings are expected to be $3m, with professional fees associated with the acquisition expected to be approximately $5m. Both of these costs will be shown as an exceptional charge.
As part of the acquisition, Imagination acquired $85m of cash in MIPS to settle a tax liability which arose on the sale of the patent portfolio. This tax liability is due to be settled in June 2013, after the financial year end.
We have continued the development and launch of a number of strategic products and technologies, including our Wi-Fi-based multiroom audio distribution and Cloud technologies, which underpin Pure's content delivery offerings. These products have been well received in the market and represent a strong foundation for future progress. The underlying technologies are also leading to licensing opportunities.
The continuing macro-economic volatility creates caution among our customers. Despite this, the licensing pipeline remains very active, although there are uncertainties over the timing of deal closures, particularly as some semiconductor companies in certain regions are undergoing structural and business changes.
We expect further product launches from our customers, including a number of our significant design wins reaching production, which will continue to drive strong growth in unit volumes and revenue and we are now confident that the unit shipments for the current financial year will exceed 500m units.
MIPS is expected to contribute approximately $11m of revenue in the current financial year which would result in a loss of approximately $1m. For FY14 MIPS is expected to generate revenues of approximately $50-55m and with the reduced cost base would be accretive to Imagination's earnings.
Despite the short-term difficult market conditions, we expect to see a financial improvement in the Pure division over the medium term, driven by new product opportunities and international markets.
Overall the Board remains confident that the Group's strong progress will continue.
The Group expect to publish its results for the year to 30 April 2013 on 19 June 2013.
Hossein Yassaie, Imagination's Chief Executive said:
"We continue to make good progress with volume ramp up across many of our existing technologies, as more of our licensees bring our latest technologies to market in increasing volumes. At the same time we are making the necessary investments in essential complementary technologies to fuel our continued long term growth.
"We are also delighted to have completed our acquisition of MIPS, which we are confident will enable Imagination to become a significant player in the processor and CPU IP market within the next five years.
"Our design wins are creating a wider base for continued momentum in future volume growth. Our stated goal of around 1bn annual unit shipments (excluding MIPS) by 2016 remains a realistic objective."