UPDATE 1-Imagination Tech CEO steps down; warns of operating loss

* CEO quits after company warns on profit

* Will sell Pure digital radio business, focus on coreoperations

* Shares down 16 pct (Adds shares, quotes, background)

By Paul Sandle

LONDON, Feb 8 (Reuters) - Imagination Technologies,a supplier of graphics technology to Apple, said itschief executive Hossein Yassaie had quit, departing as theBritish company warned it would make an operating loss thisyear.

Non-executive director Andrew Heath had been appointedinterim chief executive, the company said on Monday, adding thatit would take steps to cut operating costs, including the saleof its loss-making digital radio business Pure.

Shares in Imagination, which licenses its graphics and videoprocessing technology to semiconductor companies, have slumpedby more than 80 percent since 2012 as it struggled to ease itsreliance on the iPhone and iPad maker.

They fell as much as 16 percent in early trade on Monday to108 pence, giving the group a market capitalisation of 300million pounds ($436 million).

The company, which counts Apple as an investor, said themarket slowdown it saw in December had persisted, and had beenreinforced by uncertainty about trading prospects with China.

It also said royalties from some key customers had fallenshort of expectations in the final quarter of 2015, and licencesales were also disappointing.

Apple reported its slowest-ever increase in iPhone shipmentslast month and forecast its first revenue drop in 13 years. Itsrival Samsung Electronics has also warned of softersales of gadgets such as smartphones.

Imagination chairman Bert Nordberg said "trading conditionscontinued to be very demanding", as the group said it expectedto report an operating loss for the year to end-April.

Analyst had expected an operating profit of 8.85 millionpounds, according to Thomson Reuters data.

Yassaie took steps to widen Imagination's product line up bybuying the MIPS processing platform in 2012 for $100 million,but heavy investment has not paid off in customer orders. Healso persevered with its Pure digital radio business, despite itrepeatedly failing to break into the black.

The company said on Monday it would sell Pure and reducetotal operating costs by 15 million pounds in its next financialyear by focusing on its core multimedia product.

Yassaie, who was knighted by Britain three years ago forservices to technology, said he was proud of helping buildImagination from small beginnings into a leading provider ofgraphics processors.

"It's now time for someone else to lead this great company,"he said.

($1 = 0.6883 pounds) (Editing by Kate Holton; editing by Adrian Croft)