The Rich Apple and Poor Chipmakers
Are chipmakers in danger of loosing their business?
High-profile divorces are in the trend these days. Brad Pitt and Angelina Jolie, Britain and the European Union and now Apple and Imagination Technologies.
Today Apple announced that they are ending their partnership with Britain’s Imagination Technologies. This divorce won’t affect Apple much but it might put Imagination Technologies into a deep depression. The share price of this British chipmaker plunged 60% today.
The clouds of bankruptcy are definitely on the horizon for this chipmaker.
On the flip side, Apple is very much in the safe heavens. Apple has contracts with other chipmakers too (Cirrus Logic, SkyWorks, InvenSense, Dialog Semiconductors, and ARM Holdings). These chipmakers would be on alert too, that their partnership with Apple could end any day. As Apple are taking steps to build these chips on their own, discharging these chipmakers to boost its profits.
The risk for these chipmakers is that the Apple contributes the most to their total revenues. In the case of Imagination Technologies — it’s 50%, in the case of Dialog Semiconductor Plc — it’s 70% and in the case of the Cirrus Logic — it’s 85%.
These companies must learn from this divorce. They must diversify their businesses otherwise, they are bound to end up like Imagination Technologies.