Imagination Technologies: What’s at stake in the fight over control

There appears to be a fight on for control of UK semiconductor IP company Imagination Technologies.

The April 4, Sky News headline “State-owned Chinese investor to seize control of chip designer Imagination,” might have sounded scary depending on your geopolitics. But only two days later, the plans were reportedly scrapped, with Chief Revenue Officer David McBrien officially stating “With regards to recent media speculation about the future of Imagination Technologies, we can confirm that there are no changes being made to the Board, which remains Imagination CEO Ron Black and the three Canyon Bridge partners, or the Executive Management of the company.”

With these people gone, at least for now, the company’s interim CEO is Ray Bingham, Chairman and co-founder of Canyon Bridge. Joining him are Canyon Bridge partners Jon Kao and Peter Kuo. It’s hard to say which way this one will fall. Chinese companies have failed before when taking over foreign semiconductor firms, but the UK government has also failed to block such moves before as well. A capitalist would say Imagination is already Chinese and the UK government shouldn’t interfere; a nationalist might say the opposite.

What’s at stake here? Would such a move change much, given Imagination is already technically owned by a Beijing backed company? What does China want with Imagination anyway?

What is Imagination Technologies? What does it do?

The UK has two major semiconductor IP powerhouses. One is Softbank-owned Arm; the second is Imagination Technologies. The original company was founded in 1985. I won’t go into its entire history here (we have Wikipedia for that), but traditionally it has been famed for two things: its PowerVR GPU technology, and the MIPS CPU technology it acquired in 2012.

The company has had a rocky time since 2016 though when Apple stopped using its GPUs in its phones. When Apple makes up half of your revenue, this is a problem. Imagination’s share price plummeted, and the company was removed from the London Stock Exchange. It sold off MIPS to US AI company Wave Computing the next year. This is where its China connection began.

The China connection

In November 2017, the entire company was sold to Canyon Bridge. While this private equity fund is Cayman Island-based, it is part funded by China’s central government. The US has previously blocked Canyon from acquiring US Lattice Semiconductor for this very reason.

However, the fund was able to purchase Imagination. The Daily Mail reports that “ministers nodded through the deal after assurances that China Reform would be a passive investor and that Imagination’s intellectual property and business would stay in the UK.” It helped that Canyon Bridge was bound by US law—that is, until it moved from its US HQ to the Cayman Islands.

After acquiring Imagination, Canyon almost immediately placed Leo Li, who had been an executive at Chinese companies Spreadtrum and Tsinghua Unigroup, as CEO. Leo was a US citizen at the time, but this was already a clear sign of the direction Imagination could be heading. Li lasted only around eight months before returning to China. Imagination’s China office also began describing the firm as a “Chinese company.”

This brings us to the news from this past week. Sky News reported that China Reform Holdings, a state-owned investment holding company, was looking to “take control” of Imagination by placing four representatives as directors onto Imagination’s board. China Reform Holdings is the largest investor in Canyon Bridge.

It was rumored that the new board would look to redomicile Imagination to China. While ownership would not have changed, the move seemed aggressive to some and may have worried some people at Imagination and in the UK government for reasons of technology transfer and potential job losses.

Why is Imagination attractive to China?

I can think of two reasons, although there could be more. Imagination is on a stronger business footing than in previous years, and IP is an area China needs to improve on its path to semiconductor independence.

In January 2020 Imagination won back its business with Apple, signing a new multi-year, multi-use license agreement. The size of the deal was not disclosed, but such an all-encompassing deal would provide an extremely strong footing for Imagination to grow its business. Such a deal usually includes a large up-front license fee, as well as ongoing royalty payments based off Apple phone sales. Owning and controlling a company Apple relies on is definitely an attractive position to be in and could potentially force Apple to go back to developing its own GPU, when it clearly had decided to move away from this strategy. Of course, owning and controlling a successful company is attractive in its own right as well, despite its recent rocky history, Imagination is now in a strong position, licensing its A-series GPU not just to Apple, but also to other companies in the mobile and automotive markets.

Meanwhile, transferring IP using Imagination Technologies would be by far the fastest way to get world-class GPU technology into China.

IP is an aspect of semiconductor independence in which China really struggles. The core CPU IP is all foreign, although RISC-V is helping out in this regard. But it’s not just CPU core IP. Whether its memory, DRAM controllers, communication IP, DSPs, on-chip monitoring, or security, none of the key global players are Chinese, and in some cases, there aren’t any Chinese companies. Chinese GPU makers exist, but not major ones.

Becoming more independent means innovating yourself or acquiring from abroad. RISC-V may fill the CPU gap in the long run and controlling Imagination could be key to filling the GPU gap. While VeriSilicon’s Vivante GPU range fills some of the gap, it isn’t a globally recognized consumer device GPU brand yet, whereas Imagination can fill the handset, tablet, automotive GPU gap with ease. Whether the world is going to license a GPU from a completely mask-off Chinese SOE is another matter.

What now?

Chinese companies have been rebuffed in previous efforts to gain control of IP in the semiconductor industry, usually at acquisition or investment stages, be it Lattice Semi as mentioned above, or Tsinghua’s previous attempts to acquire or invest in Micron, Western Digital, and several Taiwanese chip assemblers. But of all governments, the UK is usually the least likely to push back.

With the UK distracted by Covid-19 and Prime Minister Boris Johnson recovering from Covid-19, one might expect London to be focusing on other, more important things. But once the board fight made headlines, politicians made time.

It’s not clear what the state of play is now, but expect strong US pressure against the Imagination move, as it directly effects Apple, coupled with growing skepticism toward China in the UK government itself. There are rumors that GCHQ objected, and that the UK government and even Boris himself are angry at China over the virus situation. With this change in attitude, Huawei’s access to the UK’s 5G network is also uncertain.

It will be interesting to see how this plays out, but I expect China to continue to acquire key technologies going forwards, whether they fail with this takeover or not, in addition to innovation efforts. Since the fast track to control is always to acquire, I can’t see it stopping.

For companies like Imagination independence is key. It is always a difficult balancing act between looking to investors to scale up the company faster and making sure that investment doesn’t lead to loss of control to one player in the geopolitical tug-of-war that the semiconductor world has become. Winning one country increasingly leads to friction with another.