Imagination Technologies has issued a mixed trading update, but the company's City followers are more concerned with Samsung's forthcoming S4 phone launch.
Imagination confirmed Samsung's Exynos S410 Octa includes the chip designer's intellectual property, and more detail's are expected at this week's S4 announcement. Analyst James Goodman at Investec said:
The interim management statement is likely to be overshadowed by Samsung's Galaxy S4 phone announcement on 14 March and speculation around it. If the phone launches worldwide on the new Samsung Exynos Octa chip, this could represent towards 100m annual royalty units – up to £20m of revenue at 100% profit (a 30% upgrade to 2014 estimates). We see this partly in the price, but still offering a potential catalyst for stock appreciation.
The trading update itself showed strong growth in royalty revenues. But the company warned:
Licensing activity remains steady with extensive on-going interest and activities in all our technologies. However, in addition to the general macro-economic uncertainty and the usual project timing, there are a number of factors that are impacting the timing of licence closure including a number of our [semiconductor company] partners undergoing structural changes, particularly in Japan.
Analyst Lee Simpson at Jefferies said:
The one concern is licensing timing, which may see some deals spill over into next year with Japanese clients as culprits (Renesas?, Sony?) and so there's a chance here we miss around 10% year on year growth for 2013 as a result. Yet the firm is keen to underline that opportunities have not disappeared but that deal closure has been stretched by current events, not a structural decline with any customer.
With six weeks to go and an often end of year slant, it's difficult to determine where the licensing level ends. The firm did, however, reiterate 500m plus unit shipments [excluding recent acquisition MIPS Technologies] for 2013 and around 1bn for 2016. The firm has guided MIPS sales to $11m in 2013 with around $1m loss. Into 2014, the firm sees $50m-¢55m (split 75/25 royalties/licensing) sales for the division and given the reduced cost base this should be earnings accretive to the group.
Imagination's shares have added 6.5p to 536.5p.
