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Apple Inks Licensing Agreement With Imagination Technologies

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Apple (AAPL - Free Report) recently signed a multi-year licensing deal with chip designer Imagination Technologies Group Plc, its former GPU supplier.

The latest deal replaces Imagination’s multi-year, multi-use license agreement with Apple, first announced on Feb 6, 2014, with a new multi-year license agreement.

Notably, per an AppleInsider Report, the iPhone-maker was Imagination’s largest client. However, per a 2017 Financial Times Report, Apple announced that it will stop using Imagination’s intellectual property within two years, putting an end to its royalty payments ($81 million in fiscal 2017).

The loss of Apple’s business caused Imagination’s market value to tank from a whopping $2.6 billion to around $520 million.

Imagination was forced to put itself up for sale after losing Apple’s business. Canyon Bridge, a Silicon Valley-based firm reportedly funded by Chinese authorities, later bought Imagination for $663 million in September 2017.

Apple Inc. Price and Consensus

Apple Inc. Price and Consensus

Apple Inc. price-consensus-chart | Apple Inc. Quote

New IP Agreement to Aid Apple’s 5G Dreams

Under the new agreement, Apple will pay Imagination a licensing fee to use the latter’s extensive intellectual property rights related to graphics and AI, which could be the keys to Apple’s initiatives to bring 5G to its flagship iPhone.

The iPhone-maker’s latest deal with Imagination comes a month after the latter launched the latest generation of its mobile GPU architecture — IMG A-Series GPU — claimed to be the fastest GPU to date.

Apple is expected to roll out the 5G wireless-enabled handsets in 2020, with its 14th-generation iPhones. The number of models, however, remains a subject of debate.

Apple has been ramping up hiring from Intel (INTC - Free Report) and Qualcomm (QCOM - Free Report) to work on 5G modems. Last year, the firm acquired Intel’s modem unit for $1 billion, in order to design cellular chips for future devices which is considered a win for the company.

Additionally, Apple plans on using Qualcomm's components till it is ready to design its own 5G modem chips. Last year, both companies reached a multi-year chip supply and licensing agreement.

Apple will undoubtedly be late in bringing 5G to its flagship iPhone compared with other prominent smartphone manufacturers like Samsung, LG, Huawei and Motorola. However, nationwide availability of 5G from all major carriers is expected to begin this year.

Furthermore, beginning 2021, all iPhone models are expected to support 5G. Qualcomm and Broadcom (AVGO - Free Report) are anticipated to supply 5G modems and RF power amplifiers, respectively.

Apple will likely have its own modem by 2022 or 2023 that will reduce the company’s dependence on Qualcomm.

Moreover, in addition to a revamped flagship iPhone family, Apple is seen coming out with a new lower-cost smartphone. The rumoured iPhone SE2 will likely be released early this year.

Zacks Rank

Apple currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank stocks here.

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