* H1 revenue up 27 pct, adjusted pretax up 10 pct
* Forecasts 500 million chip shipments this year
* Opex rises to 43.8 mln stg from 31.4 mln year ago
* Shares down 4 pct
(Adds CEO comment, analyst reaction, shares)
By Paul Sandle
LONDON, Dec 12 Profit growth at Imagination
Technologies has been dampened by higher research costs,
overshadowing a 90 percent jump in shipments of chips containing
its graphics technology used in products like Apple's
Shares in the British company reversed early gains and were
trading 4 percent lower as analysts said the operating expenses
had weighed on earnings.
Imagination, which counts both Apple and Intel as
shareholders, said the rise in operating expenses to 43.8
million pounds in the first half from 31.4 million a year ago
was down to increasing research costs and recruiting more staff.
It said it expected the rate of operating expense growth to
slow in the second half and in the next year.
Analysts at UBS said the higher expenses had offset a solid
"While Imagination highlights that the speed of increase (in
operating expenses) is short term and in response to a growing
customer base, it poses a significant headwind to the profit
growth expected," they said on Wednesday.
Imagination, whose shares were trading at 429 pence by 1141
GMT, posted adjusted pretax profit of 16.8 million pounds ($27
million) on revenue of 71.4 million, up 27 percent and beating
analysts' expectations of 68 million.
Some 237 million chips containing its technology were
shipped in the six months through October, it said, putting the
group on track to reach 500 million chips for the full year and
1 billion annually by 2016.
Imagination licenses its technology to customers like Apple
for the iPhone and MediaTek for lower-end smartphones.
Chief Executive Hossein Yassaie said on average 1.5 million
smartphones, tablets and other devices were rolling off
production lines carrying the company's graphics and video
technology every day.
"Overall we are hitting the key markets from high end to low
end," he said in an interview.
Some analysts have fretted that Imagination faces growing
competition from chipmakers like Qualcomm, Broadcom
and Intel using their own graphics technology, and from
a more aggressive push into graphics by ARM Holdings.
Yassaie responded to concerns that Intel was increasingly
favouring its own graphics technology rather than licensing it
from Imagination, speculation that analysts say was triggered by
some leaked Intel slides in the United States.
"We have very strong current and ongoing relationship with
Intel and we expect significant volume ramp-up with them over
years to come," he said.
Imagination also wants to grow its microprocessor business
and is battling U.S. mobile chipmaker CEVA to buy the
operating business of MIPS Technologies.
CEVA said on Tuesday it would pay $90 million for MIPS'
microprocessor operating business, trumping Imagination's offer
for a second time.
Yassaie had no update on Imagination's next move but said
the group would continue its processor drive with or without
MIPS. "Right now we are in process of working through the
acquisition," he said.
($1 = 0.6210 British pounds)
(editing by Kate Holton)