Apple dropping Imagination Technologies is a major signal of its future AR, VR, machine learning and driverless car plans beyond the iPhone 8

Lynsey Barber
Follow Lynsey
Apple Holds Event To Announce New Products
Apple is going it alone without Imagination for graphics chips (Source: Getty)

The revelation that Apple plans to ditch the supplier behind chips which power the iPhone, Imagination Technologies, is a huge blow for the British tech company.

Shares in Imagination dropped 70 per cent in trading and finished the day 62 per cent down at 103p, their lowest level since 2009.

The share price fall saw Imagination’s market capitalisation fall from £754m to £290m and prompted analysts to speculate that the company could become a takeover target again.

But separate from that, the move also tells us a lot about Apple's future plans.

"People who are serious about machine learning design their own chips," tweeted Benedict Evans of Andreessen Horowitz, predicting that with the timeline given by Apple for when it no longer needs Imagination Technologies (15 months to two years), Apple-designed graphics chips will appear in the iPhone 9.

And it's not just machine learning that will need super graphics processing power either.

Read more: Apple's Imagination Technologies warning: What the analysts say

"Many verticals such as automobiles, AR (augmented reality), VR (virtual reality) are going to be super graphics oriented," said Counterpoint Research's Neil Shah. "Apple doing its own GPUs also points in direction of future Apple categories - AR, VR, auto dashboards/HUDs [head-up displays], gaming hubs, etc."

Driverless cars and augmented reality are areas where Apple has long been rumoured to be experimenting.

A Bloomberg report last month suggested Apple boss Tim Cook is very serious about AR, which is becoming more and more familiar to mainstream audiences via Snapchat (and its many clones) and Pokemon Go. It has dipped its toe into this world for the first time with its own Snapchat-style app, Clips.

Tim Cook has called AR "a big idea for the smartphone".

Read more: Imagination Technologies share price drops 70 per cent after Apple warning

Speaking on a visit to the UK in February, Cook told the Independent:

"The smartphone is for everyone, we don't have to think the iPhone is about a certain demographic, or country or vertical market: it’s for everyone. I think AR is that big, it’s huge. I get excited because of the things that could be done that could improve a lot of lives. And be entertaining. I view AR like I view the silicon here in my iPhone, it’s not a product per se, it’s a core technology.

"I’m excited about Augmented Reality because unlike Virtual Reality which closes the world out, AR allows individuals to be present in the world but hopefully allows an improvement on what’s happening presently. Most people don’t want to lock themselves out from the world for a long period of time and today you can’t do that because you get sick from it. With AR you can, not be engrossed in something, but have it be a part of your world, of your conversation. That has resonance."

A set of augmented reality glasses or virtual reality headset is rumoured to be on the cards for Apple, especially if patent filings are anything to go by.

Imagination Technologies has already been losing staff to Apple, including operating chief John Metcalfe, since talks between the two companies over an acquisition ended up coming to nothing.

As Evans and other analysts have said, that Apple is heading in this direction is no surprise, "but gives us a timeline".

The next hit Apple product after the iPhone might be here sooner than we thought.