ARM chip deal raises worries for Imagination

THE WORTH of Imagination Technologies’ $100m (£62m) acquisition of US technology firm MIPS was thrown into doubt yesterday as one of MIPS’ biggest customers signed a deal with British microchip designer ARM Holdings.

ARM announced the deal with Silicon Valley chipmaker Broadcom on Tuesday night, unveiling a tie-up that will see Broadcom use ARM’s technology in processors used in set-top boxes and broadband equipment.

Shares in ARM rose yesterday following the announcement, but experts warned that the deal was bad news for Imagination, since Broadcom is MIPS’ biggest customer.

Imagination’s chief executive, the recently knighted Sir Hossein Yassaie, has said acquiring MIPS is a crucial step in diversifying his firm into the rapidly growing microprocessor market. This strategy has been poorly received by investors, however, with analysts raising flags over the danger of fighting in ARM’s backyard.

“The announcement from ARM/Broadcom specifically mentions Broadcom’s products that have historically relied on MIPS’ intellectual property (IP),” Liberum Capital technology analyst Eoin Lambe said. “It appears that MIPS’ largest licensee is moving across to ARM’s competing IP. Imagination faces an uphill task in trying to make MIPS relevant in an increasingly ARM dominated world.”

Imagination agreed a deal to buy MIPS’ operating business for $100m last month after rival bids from US company CEVA forced it to twice up its offer from an original $60m.

Imagination’s shares defied the negative noises being made around it yesterday, rising 2.2 per cent.