Shares in the company, which fell at one point by 70 percent, ended up 60 percent lower on the day.
According to Imagination, Apple’s notification has led the company to discuss alternative commercial arrangements for the current license and royalty agreement between the two.
While Imagination warned that Apple’s decision could ultimately result in the US tech giant infringing its intellectual property rights the move, if realised, would certainly be a big blow for the UK chip designer.
Apple has used Imagination’s chip technology under a licensing agreement for many years and has even taken an 8 percent stake in the business.
Imagination’s technology has been used by Apple as the basis of Graphics Processor Units (GPU) in its phones, iPods, watches, TVs and tablets.
While Apple claims that it is working on its own GPU, Imagination contends that it will be difficult, without violating its patents and intellectual property, to deliver one.
Some believe that Apple's announcement is part of its strategy to take more control of its supply chain and Apple could be playing the role of 'bargaining bully' as it looks to drive down the costs of its royalty payments.
It’s been a tough few years for Imagination with cost cutting and job losses following financial losses, so the loss of £60m in licence fees will not be easy to absorb.
Apple came close to buying the firm a year ago, so could this be an attempt to buy Imagination on the cheap? No one knows what was discussed at the time of those discussions as Apple usually plays its cards very close to its chest, but could Imagination be a likely acquisition? It’s small and has a highly specialised expertise and now, thanks to Apple’s announcement, would be remarkably cheap to buy.
It could be a long shot but some analysts are all ready pricing in a possible acquisition.