Imagination Technologies falls 10% on worries about partner Texas Instruments' plans

Despite a profit warning from Shanks and disappointing sales growth from Domino's Pizza, the biggest faller in the FTSE 250 is chip designer Imagination Technologies. The company has fallen 53.4p to 466.6p, a 10% decline, after long term partner Texas Instruments suggested at an investor conference overnight it was refocusing investment away from the smartphone and tablet market. James Goodman at Investec said: This is clearly a material negative for Imagination, with ecosystem risks apparently coming to the fore. We estimate this could affect up to 20% of group profits (on a pro-forma) basis over time, and place our target price under review. He said the conference lacked clarity over Texas Instruments' plans but reports suggested it was exiting the market: An FT article suggests that revenues for this division of Texas are about $900m. Taking a royalty rate at around 1.5% would suggest the maximum exposure for Imagination to be around £10m. This will not disappear immediately (and could be won back through other accounts potentially), but we expect a significant proportion of devices could move to Qualcomm, Nvidia and others using their own graphics chips or those who are Arm partners. £10m is around 12% of 2013 estimated Technology royalty revenues (pro-forma) and around 20% of group profits. He pointed out that Texas has been a key partner for Imagination and its products have been in product launches as recently as the Kindle Fire.