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Apple is About to Make Their iPhone Chips in-House

It’s one of the last bits of mobile hardware that Apple was still outsourcing.

While Apple outsources the manufacturing of all of its hardware, they still design everything (from sensors to processors) for their mobile devices. Well, almost everything — the GPU cores on their A-series chips are still designed by PowerVR, which is part of UK firm Imagination Technologies. However, reports today indicate that Imagination Technologies might have to imagine a future without Apple as a customer, with word getting out that Apple plans to design their own GPUs within two years.

This story might have legs. Here’s the juicy part — Apple has been working with Imagination Technologies for many years now, which means Apple has designed many generations of chipsets built around their technology. For Apple to go it alone, they’ll have to demonstrate that they aren’t benefiting from Imagination Technologies’ patents, or they’ll have to pay licensing fees.

In a statement released today, Imagination Technologies stated, “Apple has not presented any evidence to substantiate its assertion that it will no longer require Imagination’s technology, without violating Imagination’s patents, intellectual property and confidential information. This evidence has been requested by Imagination but Apple has declined to provide it.” In other words, if Apple doesn’t prove that they’re really going it alone, the lawyers are going to get a call.

This isn’t the stuff of patent trolling. With Apple having integrated Imagination Technologies’ GPUs for so long, moving to an in-house design wouldn’t just mean using a new, wholly independently developed GPU — it would mean a change to the architecture of the chipset to compensate for those changes. That’s a lot of work, and while that would explain the planned two-year delay, it’ll still be on Apple to prove that they’re not infringing any patents in the end.

Whether they turn out to be right or not, it’s a desperation move Imagination Technologies had to make. The news comes after talks between Apple and Imagination Technologies regarding a buyout fell through last year, leaving Imagination in a tough spot. The firm made £60.7 million from Apple-related royalties and licensing fees last fiscal year, and they’re projecting £65 million for this one. If Apple makes a good on their bid for GPU independence, those numbers would go down to £0 in a couple years. That’s a huge chunk of the company’s yearly revenues, so it’s not an exaggeration to call this an existential crisis — the company’s shares opened the week at around $269, and have since crashed to about $100.

For Apple’s part, the move appears to be part of a larger effort to get away from paying so much in licensing fees and royalties. In January, we learned that Apple was filing suit against Qualcomm over what Apple called anti-competitive business practices related to Qualcomm’s expensive licensing and royalty fees.

Via PC World