Apple's change of plan: iPhones and iPads will use Imagination chip designs after all

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Two years after Apple ditched Imagination, the UK chip designer powering iPhones and iPads, the Cupertino giant has had a change of heart. 

The two companies have announced that a new deal is on the table, although the exact terms of the agreement have not been disclosed. 

In a short statement, Imagination said the “multi-year, multi-use license agreement” that started in 2014 and which was ended by the iPhone maker in 2017, will be replaced by “an agreement under which Apple has access to a wider range of Imagination’s intellectual property in exchange for license fees”.

Apple will pay to access Imagination’s intellectual property, instead of relying on chips produced by the Hertfordshire-based supplier. Under the previous agreement, Imagination effectively provided the graphics processing units (GPUs) that powered Apple’s hardware.

Although GPUs are a key component in producing high-quality images, Apple announced in 2017 it would develop its own chips in-house, based on a separate and independent graphics design. 

The decision, said the company, was prompted by an effort to control its own products and reduce its reliance on third-parties.

For Imagination, which counted Apple as its main customer, the news sent shares tumbling as much as 70% to a seven-and-a-half year low, and the business’s valuation fell to £250m from £750m ($329m from $987m) before the announcement. 

Shortly afterwards, the UK company started a dispute resolution procedure with the US giant, on the basis that Apple had not provided any evidence that it could produce its own GPUs without infringing Imagination’s “patents, intellectual property, and confidential information”.

“Imagination believes that it would be extremely challenging to design a brand new GPU architecture from basics without infringing its intellectual property rights,” said the company at the time.

The new agreement seems to settle the feud, while still profiting Apple’s strategy to bring more hardware production in-house. Recently, the company announced that it will pay $1bn to acquire most of Intel’s 5G smartphone modem division.

Under the terms of that agreement, roughly 2,200 engineers will move from Intel to Apple, which will also acquire a range of patents related to wireless technologies, cellular standards and modems. 

Intel currently provides modems for iPhones, which allow Apple’s products to connect to networks operated by carriers such as Verizon and AT&T.

The Intel deal, expected to close in the fourth quarter of 2019, will give Apple further control over its supply chain. It also seems to further confirm that Apple is working to make sure that what happens in Apple products was created in Apple.