Apple poached at least a dozen employees from Imagination Technologies prior to yesterday's announcement that it was ending a key contract, putting the UK chip-maker's future in doubt, claims The Times.
According to the paper, a "hiring raid" has seen the Silicon Valley giant take on "at least a dozen" staff from the supplier over the past two years, including software and design engineers and, last June, its chief operating officer, John Metcalfe.
Imagination confirmed yesterday that Apple will stop buying its chips for use in its iPhones and other products in 15 months to two years.
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As it relies on the Californian tech company for more than half its revenues, the revelation raised doubts on the future of the firm and sent shares tumbling more than 70 per cent at one point.
Nevertheless, Imagination has come out fighting, saying Apple will not be able to make chips without infringing on intellectual property rights.
"[Imagination] may be able to fight on patents, or this may be a bargaining move. In the worst case, survival, let alone value, is in question," analysts at Jefferies said in a note reported by CNBC.
They added that it was possible the motivation behind Apple's move could be to acquire the chip-maker, as it tried and failed to do early last year.
They said: "A Byzantine analysis would have Apple intent on taking over Imagination… and using the warning of cessation to depress its prey's valuation (and emphasize its dependence on Apple) before pouncing.
"A version of this would see Apple standing by to acquire [Imagination's intellectual property] in any future crisis – perhaps at least providing a safety net to value."
Credit Suisse said the move also potentially makes Imagination a takeover target for others.
Imagination shares in freefall after Apple deal shock
3 April
Shares in British smartphone chip-maker Imagination have plummeted by more than 60 per cent after Apple unexpectedly signalled it was ending its contract.
The company derives half its revenues from supplying chips for the iPhone and other Apple products.
"[Its] technology has formed the basis of graphics processor units (GPU) in iPhones, iPads, iPods, TVs and watches," says The Guardian.
"But Apple has been working on a separate, independent graphics design to control its products and has served notice that it will stop using Imagination's technology in its new products within 15 months to two years."
Imagination's shares fell 61 per cent to 104.5p after the announcement, giving it a market valuation of less than £300m compared to more than £2bn in April 2012.
The company made its biggest ever loss last year despite earning more than £60m from its Apple contract. However, it posted a £2.9m profit for the six months to October after slashing costs.
It was expected to make around £65m from its Apple deal for the full year to the end of April.
Following today's news, the "market has been spooked by the real chance that Imagination could soon swing into substantial losses", said Steve Clayton, fund manager at Hargreaves Lansdown.
Imagination has vowed not to go down without a fight and says Apple will not be able to sever all ties without infringing on its intellectual property rights.
"Apple has not presented any evidence to substantiate its assertion that it will no longer require Imagination's technology, without violating Imagination's patents, intellectual property and confidential information," it said.
"Imagination believes that it would be extremely challenging to design a brand new GPU architecture from basics without infringing its intellectual property rights, accordingly Imagination does not accept Apple's assertions."
Talks have begun with Apple and the Guardian hints Imagination is gearing up for a legal battle with the Californian tech giant.
