Imagination Technologies Trading Update

April 12, 2006 -- Imagination Technologies Group plc ("Imagination"), the leading provider of System-on-Chip (SoC) Intellectual Property (IP), today announces its trading update for the year ended 31 March 2006. The Company plans to announce its preliminary results on Wednesday 24 May 2006.

1. Volume Shipment, Royalty & Partner SoC Progress Update

During the second half we have seen significant growth in unit shipment volume as more partner chips ramped up in volume or entered production. While we do not yet have final confirmed reports from our partners for the last quarter, we now estimate a volume of around 8m units for the second half of the financial year just completed compared to 3.2m units in the first half. The total volume for the full year is expected to be around 11m units compared to 2.5m units for the previous year. As a result we expect the royalty revenue during the second half to be around 2.5 times that of the first half (an increase of around 150%).

We started the year with seven partner SoCs in production or shipping. This has now grown to 13 shipping across mobile multimedia, digital radio, car navigation, TV and mobile TV markets. The number of announced mobile phone handsets using our PowerVR technology has now risen to over 15, including models from NEC, Fujitsu, Mitsubishi, Panasonic, Sharp, Sony Ericsson, and Motorola. We expect further handset launches over the next few months including models from other major European and US OEMs. In the growing DAB digital radio market our digital radio/audio IP platform technology has maintained its position with around 70% market share and over 130 end-user products with many from top brands. This market has so far been mostly UK centric but is now beginning to make progress elsewhere particularly with the advent of T-DMB mobile TV which is based on the DAB standard.

In the car navigation market the vast majority of the new 3D-based navigation systems in Japan use the Renesas NaviCore family of chips which deploy our PowerVR technology and volume is increasing in this market with the transition to standard factory-fit. In the TV market, our partnership with Sharp has now resulted in the first LCD TV shipments in Japan utilizing our technology. In the mobile TV market our technology, shipping in Samsung handsets, is leading the way in the first commercial mobile TV deployment in Korea and China where the T-DMB standard has been adopted.


2. Licensing Progress Update


During the second half, we concluded a number of new licensing and support agreements worth over $10m. Whilst a proportion of this business has been recognized as revenue in the financial year to 31 March 2006, a significant part is carried forward. Among these deals four were significant including the two partnerships already announced with Renesas and Centrality. The two other deals were concluded in March, one with a new partner and the second as an extension to an existing relationship. Further details on these will be announced in due course. These deals follow on from agreements closed in the first half with Intel, Renesas, Sharp and Philips. Importantly we now have three top-ten semiconductor companies as lead partners for our next generation graphics/video technology, PowerVR SGX.

We made significant strategic progress during the second half with our licensing partnerships and we continue to have a strong pipeline of prospects. However, the nature of the industry does mean that the timing of the closure of licensing business will continue to be difficult to predict. Delays in the closure of some of the deals has meant that the overall value of the licensing business in the second half has been lower than expected.

However, with the strong prospect list we do see real opportunities for our range of technologies including; PowerVR SGX, the new family of next generation graphics/video technology where we have already secured a number of top-ten semiconductor companies as lead partners; our mobile TV technology with its low power and unique multi-standard capability supporting key standards including T-DMB, DVB-H and ISDB-Tss; PowerVR MBX mobile graphics where we are seeing license extension demands from existing partners as well as interest from second tier semiconductor customers; and our TV technologies where our new multi-standard video decoding IP core (PowerVR MSVDX) is strongly positioned along side our demodulation and audio processing.


3. PURE Digital Update


In the second half of the year, PURE Digital has maintained its leadership of the growing DAB radio market with around 30% of the UK market share. It continues to bring to market a wide range of technically advanced and quality products, such as the feature rich EVOKE-3 radio, and has broadened its range in key categories including micro systems, clock radios, and life style products. Volume growth has been achieved by wide product ranging amongst the key retailers, including Marks & Spencer, a strong Christmas period and through overseas growth notably in Scandinavia.

We expect PURE Digital to continue its solid progress and its leadership in the DAB market as this segment continues to grow in the UK. It is also starting to progress in the rest of Europe. For the current financial year, PURE Digital has secured strong product ranging among the key retailers and is poised well for Christmas 2006.


4. Financial


Overall group revenues in the second half are expected to be up around 70% compared to the first half, and 25% up on the corresponding period last year, resulting in a much reduced loss in the second half compared to the first half.

Although we are seeing significant growth in royalty revenues, we expect overall technology revenues for the year to be similar to last year due to the timing of the closure of licensing business noted above. The estimated 150% increase in royalty revenues for the second half over the first half, means that there will have been a three fold increase for the year relative to last year. We expect strong royalty growth to continue as an increasing number of chips come to market. The pipeline of active licensing prospects for our key technologies including graphics, mobile TV and TV is continuing to provide us with strong opportunities going forward.

Second half revenues for PURE Digital were up around 35% on the same period last year, based on the strong Christmas period and the launch of a broader range of products. Overall PURE revenues for the year are expected to be up by around 24% on the previous year with the gross margin percentage only marginally lower.

Cash resources were £6.4m as at 31 March 2006.

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