LONDON Imagination Technologies, the British chip designer whose graphics technology is in smartphones from Apple and Samsung, reported lower full-year profits as licensing slows.
The British company, which licenses its designs to chipmakers and receives a royalty on every unit shipped, has lost business it had expected from customers such as Texas Instruments and ST Ericsson as the smartphone market consolidates around a few big players.
It warned last month that the shift would hurt license revenues this year and next, leading to sharp profit forecast downgrades from analysts.
"The number of players in that segment has reduced over the last few months, there have been winners and losers," Chief Executive Hossein Yassaie said in an interview on Wednesday.
Its competitor ARM has also been winning market share in graphics in smartphones, mobile computers and digital TVs.
But Yassaie said the company would retain a strong position in what was still a growing smartphone market, both at the top end, where Imagination is strong, and at the lower end.
Analysts had raised concerns that Apple, which holds a 8.7 percent stake in Imagination, could opt for a cheaper chipset from Qualcomm for a possible low-end iPhone, rather than designing its own processor.
Yassaie said he was confident that the major smartphone players would stay loyal: "I would be very skeptical of people who believe that customers will change an ecosystem on the back of that sort of issue.
"A lot of our customers have the technology and ability to target different price points with our technology."
Yassaie is targeting markets like televisions, and, in the longer term, wearable technology. Its designs are in Google Glass, the computer with a display on a pair of glasses.
But for the next year, Yassaie is sticking to guidance of licensing revenue of 30 million-35 million pounds.
Analysts in May said the forecast indicated that the company was undergoing more than a short-term blip in licensing.
"We would rather take a cautious approach than be very aggressive," Yassaie said. "It is possible we do better than that, but we stand by that guidance."
Imagination posted adjusted pretax profit of 34.3 million pounds ($53.5 million) for the year to end-April, down from 36.8 million, on revenue up 19 percent to 151.5 million pounds.
Shares in the group, which fell 27 percent after the profit warning, were trading up 3 percent at 314.5 pence by 1052 GMT.
"Given the weakness of the stock into this update, arguably a set of results in line with the trading update should be sufficient to support the stock," analyst James Goodman at Investec said.
($1 = 0.6407 British pounds)
(Editing by Rosalba O'Brien/Ruth Pitchford)