Imagination Technologies Group plc: Interim Management Statement

March 16, 2011 -- Imagination Technologies Group plc ('Imagination', LSE: IMG), a leading multimedia, communications and embedded processor technology company, is today issuing its Interim Management Statement for the period from 1 November 2010 to 15 March 2011.

Overview

The strategy of targeting the Group’s strong IP portfolio towards key transitions in existing markets as well as providing key enabling technologies for emerging markets continues to drive an increased activity level across the Group’s licensing business. Engagements with many partners are increasingly becoming long-term and strategic in nature.  The Group is also progressively building relationships with new partners, for both existing and new emerging markets.

It is clear that the Group’s market-leading technologies in multimedia, connectivity/broadcast and embedded processing offer both significant advantages to its partners, and provide a strong and highly scalable base for Imagination’s continuing growth.

Technology

The Group continues to see growing engagements for and commitments to both mature and the very latest POWERVR SGX cores, including SGX543 and SGX544 and their multi-processing (MP) variants. Recently market-leading SoCs (System on Chip) using these latest technologies were announced by several of the Group’s partners including Sony, TI, Renesas and others.  The momentum in design-wins for POWERVR graphics technology continues with many more designs in the pipeline. 

The next generation POWERVR Series6 technology, codenamed ‘Rogue’, has already secured several tier one partners, including STMicroelectronics which was announced last month. This new technology has been acknowledged by a number of key partners as further enhancing the technological edge of the POWERVR architecture in terms of feature set, performance, power consumption and overall efficiency over competing technologies.

The POWERVR Insider ecosystem is now the largest and fastest growing graphics ecosystem in the industry and is a key competitive advantage for the Group and its licensing partners.

The fundamental technical advantages of POWERVR and its market-leading and strong roadmap, combined with the associated extensive and growing ecosystem, are increasingly resulting in new customers selecting or switching to Imagination’s technology.  This trend is particularly important as the worldwide embedded graphics market alone has the potential to reach multi-billion annual units over the next five years or so. 

In addition to the continued adoption of Imagination’s graphics technologies, the Group is seeing growing demand and engagements for its other key technologies.  The video, broadcast/connectivity, and multi-threaded processor technologies, which the Group has created and continues to develop, are designed to take advantage of fundamental trends in key markets that are changing or emerging. Over time, as seen with the graphics, these technologies are expected to show an increasing contribution to the growth of the business as relevant industry trends emerge. 

In particular, the Group is seeing growing adoption of its POWERVR video processors, often alongside the graphics technology, driven by both video content delivery and more recently by video content creation, including for example user-generated content (e.g. YouTube) and personal video telephony.

As was indicated in previous statements, the level of partners’ interest and engagements in the Group’s ENSIGMA UCC - multi-standard communication and broadcast IP – has continued to accelerate recently.  The efficiency and flexibility benefits of this offering have become more apparent with the growing and diverse range of digital broadcast and internet connectivity requirements in the latest consumer products.

The Group’s broadcast and connectivity solutions, as well as its ongoing drive into internet connected devices, take advantage of Imagination’s multi-threaded META processor cores, which offer significant competitive advantages when real-time and multi-functionality is a key requirement.

Furthermore, the emergence of open source operating systems, including Android, and the inevitable trend of internet connectivity is helping to drive deployment of META processors, in conjunction with the Group’s connectivity technologies in a variety of emerging markets.

Based on the strong licensing revenues in the first half of the financial year, licenses already signed in the second half, and the ongoing active pipeline of prospects, Imagination expects licensing revenue to continue to make progress in the financial year to 30 April 2011. As usual, it remains difficult to precisely predict agreement closures and the associated revenue recognition. 

The number of partner chips incorporating Imagination’s IP that are entering manufacturing continues to grow and, based on this and the build up of volume on existing chips, the Group expects to see strong volume unit and royalty revenue growth in this financial year and beyond.

Based on the royalty reports for the period to December 2010, the Group expects the volume of chips shipped in the second half to comfortably exceed the 107 million shipped in the first half. As a result full-year volume is expected to exceed the previously set target of 200 million by some margin.

This growth, notably in the smartphone and tablet markets, is coming through in spite of the tight economic conditions and results from the Group’s focus on developing technologies highly relevant to growth and emerging markets, a key attribute of Imagination’s strategy in all of its technology developments.

Acquisitions

The Group is progressing with the integration of Hellosoft, with its leading V.VoIP (Video & Voice over Internet Protocol) and complementary wireless LAN technologies, and Caustic Graphics, with its ground-breaking ray-tracing graphics technology.  Both were acquired at the end of 2010. 

The benefits from these acquisitions will increasingly be seen as the Group is able to offer a broader range of products to both existing markets and via new channels to wider markets. The Group is pleased with the reaction from both existing and potential partners to the V.VoIP, wireless LAN and ray-tracing graphics technologies that the Group is now able to offer.

PURE

In support of Imagination’s overall strategy, PURE has continued to fulfil its prime role of path-finding and promoting the Group’s technologies. PURE carries out specific technology and product developments as well as using its channels and now well-established brand to promote Group’s technologies and drive relevant emerging trends.

The general adoption of digital radio standards overseas has continued to progress, albeit with variable rates of market development across different countries. Recent important progress in Germany is of particular significance. 

The Group has also seen the market for connected and cloud-based audio devices starting to emerge globally. PURE has continued to develop leading and compelling products to address and drive these markets and these key activities are continuing.

The launch of FlowSongs, which for the first time enables both one-button music purchases directly from a radio and easy delivery of cloud-based content, is among the key steps in developing these markets. This initial service will be extended over time to take full advantage of the capabilities of the underlying technologies and to drive the emerging cloud-based content and services.

PURE’s groundwork in optimising Imagination’s technologies for connected devices is key in enabling the Group to be able to provide a range of technologies, based around ENSIGMA UCC and META.  These technologies are required for the increasing number of consumer and industrial devices, as highlighted above, which will inevitably incorporate connected and cloud-based functionality as standard.

The tougher trading conditions in retail, particularly in the UK, have continued to impact PURE in the second half of the financial year with retailers remaining cautious. Overseas markets are progressing with developments in the German market being particularly positive, albeit with material revenues from this region not coming through until the 2011/12 financial year.

The Group expects the second half revenues from PURE to show an improvement over the first half, although full year revenues will be lower than last year.   

Outlook

Based on the active licensing pipeline and the strong growth in chip volume and the associated royalty revenue, the Group remains on track for good growth in the current financial year. 

For the medium and longer term, Imagination remains on course to achieve further significant growth as existing markets develop and new markets and applications emerge where its technology can make a significant difference to the consumer experience.

The ongoing deepening of existing partnerships and the continued growth in the customer base is further helping to underpin the Group’s progress. It should be noted that although Imagination has made significant progress to date, the exploitation of many of its key technologies is still at an early stage in many markets.

PURE is being impacted by the tighter economic conditions in the current financial year but with a range of new products and services to be launched during 2011 and the benefit of growing overseas markets, the Group expects to see improvement in this business’s trading over time.

Whilst the precise timing of licensing revenue always remains difficult to predict in the short term and the general global economic environment, including any potential impact of the recent tragedy in Japan, may have some influence, the Board is confident that the Group is very well placed to see further good progress in line with its expectations.