Imagination Technologies Group Regulatory News (IMG)

16 September 2015

Imagination Technologies Group plc

Interim update

Imagination Technologies Group plc (LSE: IMG, "Imagination", "the Group"), a leading multimedia, communications and processor technology company, is today issuing its Interim update for the period from 1 May 2015 to 15 September 2015.

Business update

Licensing activity in the period has been steady with an encouraging increase in the overall pipeline of opportunities.

While some of our customers have performed strongly, overall unit shipments and royalty revenue for the quarter ended 30 June 2015 have been slightly lower than our expectations.

The semiconductor market in general has experienced a weaker quarter ending 30 June 2015. Unit shipments and royalties in the June quarter were also impacted by a customer's ramp-down of a legacy silicon chip earlier than previously indicated. This resulted in a timing gap before the replacement chip ramps up.

Pure is trading in line with expectations, with improvements seen in the important UK and German markets.

Operating costs continue to be tightly managed and are marginally lower than our expectations.

Technology

Multimedia

Early PowerVR Series7 devices have entered production with several others to follow. PowerVR Series8 technology is at an advanced stage of development with initial engagement with lead partners having begun and already resulted in strong positive feedback and interest.

The reference chip demonstrating our ray tracing IP, mentioned in our June 2015 results statement, has now been received from the foundry. The bring-up and evaluation process is progressing as expected. We are aiming to have demonstrations based on this reference platform for key interested partners by the end of the calendar year.

CPU and processor cores

MIPS processors continue to gain further industry recognition and acceptance. The recently announced virtualisation-based security technology, OmniShield, has attracted considerable interest. It offers hardware-enforced multi-zone separation which is essential for emerging security needs as well as reliability in applications which include safety critical aspects, such as automotive.

The MIPS business unit is steadily extending the family members across all three of the M, I, and P-classes. We expect to be able to announce additional cores in the M-class and P-class categories in the near future. The comprehensive range of MIPS IP cores for everything from microcontrollers and Internet of Things (IoT) devices to 64-bit application processors and servers is delivering choice in the processor IP market that is increasingly welcomed by a growing number of customers.

Communications

Ensigma's key business goal remains becoming the number one global connectivity IP provider, especially in the emerging and fast-growing IoT market, as this IP market continues to develop and grow. In that endeavour the two product lines, Explorer and Whisper, are designed to address performance and low-power requirements across all key markets.

The complementary and growing RF technology we are now able to offer alongside our basebands is increasingly enabling delivery of complete solutions which are in growing demand and are helping to create an expanding opportunity pipeline. There are several design-wins for both Explorer and Whisper Series4 RPUs and the first design has now entered production.

Pure

The Pure business has progressed as expected. With its latest products, the customer engagement and ranging has improved significantly in the UK with Germany also improving steadily. The most active business period is normally the run into Christmas, from October to January.

Outlook

The semiconductor sector in general had a weak June quarter but the industry expectation is for this to improve in the second half of the year and in particular in CYQ4. Part of this has been driven by the sharp slowdown in the rate of growth of the emerging economies, and in particular the Chinese market.

The combination of general market softness in H1 and the short-term timing impact of the replacement chip ramp up mentioned in the business update, lead us to expect lower H1 revenues than we had previously forecast, which is likely to lead to a loss for H1.

Based on the strength of the licensing pipeline and customers' product launches we now expect a stronger H2 than previously forecast. However, at this early stage of the year, we cannot be certain that we will recover all of the H1 shortfall.

Given the strong licensing activities in the last couple of years and the growing design wins in various markets, we expect the medium-term volume to gain significant momentum despite these short-term industry and specific factors.

The progress in Pure has been maintained and we continue to expect an improvement in revenue and profitability this year.

To the extent that we see the weaker performance from the June quarter persisting then we will manage the rate of investment in operating costs accordingly.

Hossein Yassaie, Imagination's Chief Executive said:

"Following the strong licensing during the second half of last financial year, the pipeline of opportunities has encouragingly built-up to healthy levels during the first quarter of the year.

"For both our PowerVR GPUs and MIPS cores we are seeing growing interest and engagements from several high volume partners. We expect these engagements to lead to licenses during this financial year and, combined with tier-one deals closed during the second half of last year, will help to build significant volume growth in the medium-term.

"The Ensigma IP families continue to strengthen as we build up all the elements towards complete solutions. The level of customer engagement is increasing strongly, helping to grow this developing business.

"There are some indications of general softness across the semiconductor industry for the short-term. However, given the relevance of our technologies to the key markets and design-wins we have already secured and expect to secure, we remain confident of a growing momentum in our business in the medium-term."

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