Imagination revenues miss expectations

Sales at Imagination Technologies, which makes graphics technology used in chips for computers and mobile phones, were slightly short of expectations in the year to 30 April, but the company said today it expects annual sales of devices using its chips to top 1bn within five years.Revenue grew by 21% from the previous year to £98m. Analysts had been looking for a figure some £100m or so higher. Pre-tax profit rose to £16.4m from £10.2m. Imagination said that "partner chips shipped" - the number of devices using its technology sold - almost doubled to 245m. Chief financial officer Trevor Selby told ShareCast the momentum this demonstrates leaves the company confident of hitting the 1bn target. Imagination makes money from royalties it receives from the sale of devices that use its technology, including the Apple iPad. It also licenses technology to companies such as LG and Fujitsu and operates PURE, which makes digital radios using Imagination's technology.Revenues in the technology business, which includes licensing and royalties, increased by 47% to £69.8m. Sales at PURE, which is feeling the pinch of tight consumer conditions, fell back to £28.2m from £33.6m."Whilst acknowledging the on-going challenges to the global economy, we are increasingly confident of our continued good progress in the current financial year and beyond given the very active, growing pipeline of licensing prospects, the growth in design wins and the momentum in our chip volume, together with PURE's leading position and product portfolio," chief executive Hossein Yassaie said.Broker JP Morgan has cut its target price on Imagination to 570p from 600p."We see an increased investment in R&D to support future growth and challenging trading for Systems (the division that includes PURE) as offsetting the strong Technology revenue growth," it said.According to Espirito Santo "strength in licensing (13% above consensus) was more than offset by continued weakness in Pure digital radios (12% below consensus)" in the full-year results.In a note before the latest results, analysts at Arete Research questioned whether PURE fits in with Imagination's business saying it "increasingly looks like a distraction for management."But Selby insists that PURE is an important part of the whole business and is "not just a digital radio company tacked onto the whole group."As an example he pointed out that Imagination has gained its first big name licensee for its UCC broadcast technology, which had been promoted through the PURE division.---RG