Join our community of smart investors

Reality check: Imagination chief steps down as smartphone market slows further

Sir Hossein Yassaie has resigned as head of the microchip designer after 18 years at the helm
February 8, 2016

It's the end of an era for Imagination Technologies (IMG). Sir Hossein Yassaie has resigned as the embattled microchip designer's chief executive after 18 years at the helm. The news was accompanied by yet another profit warning: management now expects to report a pre-tax loss in the year to April 2016. It also launched a strategic review of the business, declared it would sell the Pure hardware business and revealed plans to slash operating costs by £15m next financial year.

IC TIP: Sell at 126p

Above: Imagination's share price performance during Mr Yassaie's tenure. The company's valuation peaked in 2012 with a market cap of over £1.8bn, compared with £361m today.

Similar to Arm (ARM), Imagination licenses out microchip designs to companies such as Apple then collects royalties for every device shipped that contains one of its chips. Slowdowns in the international smartphone and microchip markets have taken their toll on the multimedia, processing and communications specialist: management said that royalties from some key customers in the latest quarter were disappointing. And although Imagination has secured £24m in licensing revenue since the start of the year and the order pipeline remains strong, it has closed deals more slowly than expected. The combination of lower royalties and licensing uncertainty led management to forecast a significant decline in revenues and profits this financial year.

 

Non-executive director and ex-Alent chief Andrew Heath will take charge of Imagination while the board searches for Mr Yassaie's successor. Mr Heath's first order of business may be selling the group's much-disparaged Pure business, which makes digital radios and wireless speakers and has posted losses for eight consecutive years. When we spoke to Mr Yassaie, he defended the division as a means of getting Imagination's technology into people's homes, making it an easier sell than if it was straight out of a lab.

Imagination's management plans to scrutinise the entire business, including its lofty research and development spending, over the coming months. It intends to focus investment on core activities; for instance, by re-investing £2m of the cost savings from the upcoming reorganisation into PowerVR, the group's flagship graphics technology.

"We have built Imagination from very small beginnings into the leading provider of graphics processors as well as...micro-processors and connectivity solutions," said Mr Yassaie. "It's now time for someone else to lead this great company."

Broker Peel Hunt expects a pre-tax loss of £6.4m this financial year, giving a loss per share of 1.8p (FY15: £17.7m and 6p).

Click below to watch our interview with Mr Yassaie at Imagination's headquarters from 2015 and see some of the group's technology in action: