Imagination Technologies Group plc - Interim Management Statement

Imagination Technologies Group plc ('Imagination', LSE: IMG), a leader in System-on-Chip intellectual property ("SoC IP"), is today issuing its Interim Management Statement for the period from 1 May 2011 to 7 September 2011.

Overview

Following on from the strong performance in the last financial year, the Group continues to see high levels of licensing and design activities with both existing and new partners. This is driven by the strong relevance of the Group’s IP to key transitions in existing markets and the enabling of emerging markets. This growing demand continues to expand Imagination’s customer base and broaden its partners’ engagements across the range of the Group’s technologies.

Technology

There continues to be strong demand across our full range of PowerVR SGX IP Cores, including our latest SGX Series5XT. There are growing numbers of SoC design starts and of devices entering production. We are also seeing a very high level of interest and growing engagements in our next generation graphics technology, PowerVR Series6.

The fundamental technical advantages of the PowerVR architecture, its market-leading and strong roadmap, and the associated extensive and growing ecosystem are the keys to our continued success and real differentiators. These are increasingly resulting in new customers selecting or switching to Imagination’s technology.

PowerVR has become the graphics technology of choice for the mobile and embedded space, with a growing installed base in excess of 500m units and a strong ecosystem across all key operating systems.

Around 40% of partner chip volume shipping is now deploying our video technologies, driven by the growth of video content delivery. The continued strong demand for video delivery and the more recent advent of personal video telephony have meant that the licensing of our video IP cores continues to make good progress.

The Group’s multi-standard communication and broadcast IP, Ensigma UCC, is now being seen by leading players as a highly efficient solution to enable consumer devices capable of receiving a diverse range of digital broadcasts and internet connectivity (such as smart TV). As previously reported, we have already licensed several partners including a top-tier player, and expect several others currently engaged in evaluation of this technology to move forward during this financial year.

With Meta processors successfully embedded in many of Imagination’s IP cores and designed to offer multi-threading, real-time and signal-processing capabilities, the Group continues to see progress in new and emerging markets such as digital radio, streaming audio systems, smart energy and health care. Combining the Group’s processor and connectivity technologies to create the concept of a 'connected processor' backed up by client and portal software technologies is an important emerging area for the Group.

The HelloSoft Voice-over-IP (VoIP) technology is increasingly relevant as communication networks migrate from circuit-switching to internet protocol based solutions as more categories of devices become capable of connecting to the internet. The emergence of LTE networks is creating growing opportunities for this offering and driving engagements with network operators whilst VoIP is increasingly being demanded/expected for connected devices. Work is underway to further develop video capability of this software offering and to extend its support to the Group’s hardware video codec IP cores.

Overall, progress on licensing the Group’s technologies, both in terms of signed agreements and the pipeline of prospects, remains strong. As a result of this encouraging start, we expect to see licensing revenue make good progress this financial year, albeit the timing of the closure of licensing deals remains difficult to predict accurately across the year.

The progressive build-up of licensing activity over several years has led to a growing stream of new partner chips entering the pipeline. These typically take around two to three years to emerge as shipping devices. It is the visibility of this strong momentum which enables us to be confident that, even if only taking account of existing chips in the pipeline, we have a firm foundation which will result in strong royalty revenue growth over several years.

Given the momentum in customer base growth and the requirements of the growing markets we operate in, we continue to invest to scale and grow the business and the technology roadmap.Whilst we only have visibility of royalty statements from licensing partners for the first two months of the financial year, we expect to see strong unit volume and royalty revenue growth in this financial year as we move towards our target of over one billion partner chips per year within five years. This will be driven by growth across all our market sectors notably: mobile phone, portable mobile multimedia, TV/Set-Top Box and mobile computing (tablets/netbooks/low power PCs).

PURE

PURE has continued to fulfil its prime role of path-finding and promoting the Group’s technologies. The general adoption of digital radio standards overseas, particularly with German roll-out progressing, has continued to advance, albeit with variable rates of market development. We have also seen the market for connected audio devices developing globally. PURE has continued to develop leading and compelling products to address and drive these markets.

We see PURE’s groundwork in optimising our technologies for connected devices as key in enabling the Group to provide a range of cloud-ready technologies, based around Ensigma UCC and Meta. These technologies are required for the increasing number of consumer and industrial devices, which will inevitably incorporate internet/cloud-connected functionality as standard.

PURE endured difficult retail market conditions during the last financial year, particularly in the UK. Whilst the UK market remains difficult, PURE is seeing some encouraging signs in overseas markets with the progressive global roll-out of DAB and the adoption of internet connected devices. It is expected that this will feed through into revenue growth in PURE in the second half of this financial year.

Outlook

Based on the robust licensing pipeline, the momentum in the royalty revenue growth and the expected progress from PURE as overseas markets emerge, the Group continues its strong progress.

Whilst macro-economic volatility could have some impact on the rate of our development, the Board remains confident that the Group is on track for further good growth in the current financial year.