Microprocessors designer Imagination Technologies (IMG) remains a conundrum. Today's full year to 30 April results are perhaps best summed up by Investec analysts Julian Yates and Roger Phillips: 'Full-year results are a small miss, but after the last two years of downgrades this almost feels like a relief.' The shares are up 2.5% today at 220.75p, but that's a far cry from the 700p-plus levels of 2012.

The numbers themselves are mixed to say the least. Overall revenue is up 4% to £177 million while Technology revenues continue to grow, up 7% to £158.6 million, split by a modest 2% gain in licensing to £39 million and royalties 9% up at £118.9 million. Yet most of the latter's gains seem to be coming from its MIPS CPUs (central processing units), strip those out and shipments are flat at 530 million.

The downside on MIPS is greater operating costs (adjusted operating margins declined from 21% to 17%), cutting adjusted operating profit for Technology by 14% to £27.1 million.


Management remains optimistic that the natural operational gearing inherent in the business will spark an improvement in operating margins down the line, on both the MIPS CPU and its PowerVR multimedia GPU (graphics processing units) sides. But digital radio business Pure remains a massive headache.

Sales fell 21% to £18.4 million and losses remain substantial at £6 million. Chief executive and founder Hossein Yassaie is undoubtedly a talented technology business leader but Shares can't help but feel that he is allowing belligerence to overcome common sense, on Pure anyway.

He has long held the view that this unit forms an important part of Imagination, yet years of cash being sunk into this seemingly bottomless black hole, with still no realistic change likely anytime soon, suggest otherwise.

As long as the CEO retains his stubborn commitment to Pure it's hard to see how Imagination can compete with the big boys.


Which makes the £595 million company looking increasingly like a takeover target to us. Parallels can, and arguably should, be drawn with chips designs peer CSR (CSR), now effectively owned by US giant Qualcomm (QCOM:NDQ). It too had some great technology but lacked enough scale to go it alone, and this leaves Imagination investors once again pondering the big question, can this limited resourced technology company go toe-to-toe with industry giants including ARM (ARM) and Intel (INTC:NDQ) in an increasingly competitive space, and survive. Over to you, Mr Yassaie.

Issue Date: 30 Jun 2015