On the plus side, MIPS shipments are ahead of expectations and non-MIPS shipments are in-line thanks to iPhone 6. The strong dollar also helps, though IMG's hedging activities have partially offset this. The 30-40% operating margin is re-iterated by HY.
On the downside we have the 'a little muted' licensing activity, ie. no 10% gain, more likely to be in the 0-5% range. When you factor in a stronger dollar than last year, the reality is another decline in licensing revenues. This is the age-old problem with IMG, superb IP but unable to convert into strong licensing growth (which of course impacts the royalties 2 years down the line) - hopefully this repeated failure to execute is something the incoming chairman can objectively address?
Here it is:
Imagination Technologies Group plc ('Imagination', LSE: IMG, “the Group”), a leading multimedia, processor and communications technology company, is today issuing an Interim update for the period from 1 November 2014 to 17 March 2015.
Business update
The Group has continued to make good progress in its strategy of providing a comprehensive range of market-leading cores in the three key IP families of processor, multimedia and communications and enabling key IP platforms for existing and emerging markets.
Non-MIPS partner unit shipments increased strongly in Q4CY14, showing growth both sequentially and over the same quarter last year.
MIPS partner unit shipments were stronger than expected in Q4CY14 and, for a second quarter in a row, have reached a historic record level for that quarter.
Licensing activity has been a little muted during the period, due to timing rather than any fundamental change in demand for our products. Indeed the pipeline is good and growing with a large number of opportunities being pursued for closure this financial year. The pipeline is active across all areas of our IP.
The changes made to Pure in the last financial year are starting to deliver improved performance in its core markets.
Underlying operating costs continue to be tightly managed and are tracking in line with expectations.
The stronger dollar has had a positive impact on revenues which are mostly invoiced in dollars. This positive effect has been partially offset by the impact of FX on geographically-distributed operating costs and previous hedging activities.
Technology
Multimedia
Our multimedia business remains robust with new class-leading products launched across the full range of end markets. The newly announced Series7XT continues to secure new design wins across key partners. We are also seeing a wide range of design wins for Series6XE and more recently the newly announced Series7XE at the lower-end complementing the Series6XT and Series7XT wins. The design wins are strong across mobile, automotive, TV and STB segments.
At this year’s Mobile World Congress (MWC) Imagination unveiled the PowerVR Rogue G6020 GPU that has been specially designed for graphics efficiency in ultra-compact silicon area and lowest power consumption, whilst delivering optimal device performance and full compatibility with the latest APIs. With the PowerVR GX5300 and G6020 GPUs, Imagination covers graphics and UIs from entry-level smartwatches to high-end wearables.
At the other end of the performance range the PowerVR Series7 GT7900 continues to lead the market, with 512 ALU cores, and is a super GPU for high-end graphics and compute delivering over 1.5 Teraflops. The PowerVR Series7 launched during the period includes many advanced features and uniquely provides virtualisation for ultimate multi-zone security, an area of growing market demand given the importance of data security and the programmability of modern GPUs.
The new PowerVR Series5 video encoders for High Efficiency Video Coding (HEVC) are designed to provide the highest quality H.265 encoding, while optimizing silicon area and bandwidth usage. This multi-standard encoder also offers high-quality H.264 encoding for compatibility with the huge range of AVC (Advanced Video Coding) decoders available today.
CPU and processor cores
The growing unit shipments of MIPS cores is evidence of increasing customer confidence and the stronger engagement that we have begun to see with customers since MIPS was acquired in February 2013.
Interest in and licensing of the Warrior range of cores, which have been developed since the acquisition, as well as the previous generation Aptiv range, continue to be strong. Partners have been attracted by the inherent efficiency and performance benefits of the cores, together with the additional features of multi-threading and next generation security capabilities.
The use of hardware virtualisation in the Warrior cores to enable multi-zone security across the range, from microcontrollers to high-end, provides partners with solutions to the increasingly demanding challenges of SoC security. Our unique strategy in delivering CPU and GPU cores supporting multi-zone security is attracting industry attention and is the foundation for total SoC security. An announcement from the prpl Foundation yesterday on the formation of an Open Security working group with members from industry leading companies reinforces the importance of our approach.
The strong MIPS roadmap executed so far and being driven going forward, the investment in internal and third party supporting tools, and the growing momentum in the ecosystem through initiatives such as the prpl Foundation and the Creator family of boards, are recognised and supported by many in the industry.
Overall we believe we are now at a stage that new and existing tier-one partners are beginning to consider MIPS offerings as both technically strong and strategically important to their plans.
Communications
Imagination’s Ensigma radio connectivity processors (RPUs) are vital to servicing the growing demand for communications IP cores in key markets including IoT, wireless home, mobile and wearables.
At MWC, Imagination demonstrated a new HDMI streaming device using Ensigma Explorer 802.11ac connectivity, and also highlighted its Ensigma Whisper IP that is designed to drive the next generation of wearables, the emerging IoT and other connected devices where ultra-low power consumption and low-cost design points are essential. Whisper RPUs, like their Ensigma Explorer counterparts, are aimed at providing multi-standard support in a single architecture, and are designed to enable customers to bring Wi-Fi, Bluetooth and in the future NFC, GNSS and other low-power connectivity technologies onto their SoCs.
A key platform that deploys Ensigma RPU and MIPS processor cores and combines them with the industry’s best and patented wireless synchronisation and lowest latency technologies is Imagination’s Caskeid audio platform. We have seen significant traction in this offering with major projects underway with key players for delivery during the second half of this calendar year.
Cloud IoT technologies and initiatives
As part of our market engagement and enablement of the emerging IoT opportunities we have developed the FlowCloud software technologies which can enable and accelerate easy and quick deployment of our processor and communications IP in these markets. FlowCloud, in conjunction with the Creator family of microcomputer and development systems and third party boards and modules, is enabling a diverse range of applications in the IoT space. Early projects in the areas of agriculture, health and energy are underway with partners. We are also working on industry initiatives on the key areas of security and interoperability which are gaining traction.
Pure
The refocused Pure business has continued to drive improvement in its core DAB market as well as driving other areas of strategic significance for the Group including wireless audio, where strong partnerships are progressing and the Creator range, which is a key enabler for the developer community and ecosystem build-up.
Outlook
The licensing pipeline is good and is further strengthening across all three IP families with developing engagements with new and existing partners including several tier ones. Given the licenses signed so far this financial year and the pipeline of opportunities scheduled to close this quarter, we currently expect licensing revenue to be close to last year’s level with the potential of single digit growth dependent on exact closure timing of the remaining deals.
Non-MIPS unit shipments are expected to be in line with previous guidance and similar to last year’s levels. Given the continued strength of MIPS shipments we now expect MIPS units to grow by approximately 5-10% over last year’s levels.
The total unit expectation for the Group is in excess of 1.3bn units for the year.
Following the trends seen in the first half, Pure is expected to show a reduction in the underlying loss for the year. Because of the tighter focus on products and markets, this will be achieved from lower overall revenue than last year.
Underlying operating costs are expected to be in line with previous guidance of around 10% growth year on year. With the product lines now complete, this is consistent with our planned transition from a heavy investment phase to one where all product lines are generating a contribution.
Underlying operating costs are expected to be in line with previous guidance of around 10% growth year on year. With the product lines now complete, this is consistent with our planned transition from a heavy investment phase to one where all product lines are generating a contribution.
The overall financial position of Imagination remains robust and the Board is confident that the Group’s progress will continue.
Hossein Yassaie, Imagination’s Chief Executive said:
“I am particularly pleased to note another strong performance from our partners using MIPS processor IP. Customer interest in this technology is now very strong and underpins our confidence in the value that this business will deliver.
"Our multimedia business remains robust with new class-leading products launched across the full range of end markets. We are seeing a wide range of design wins for both Series6 and Series7 families.
“Despite being at an earlier stage of market adoption, the traction for our Ensigma communications IP is real and continues to increase. This is opening up substantial opportunities in the IoT market.
“The progress across our three main IP families is a further step forward towards our longer term target of increasing our operating margins to 30-40%.”
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