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Intel backs Imagination Technologies further and this makes it a Buy say Liberum Capital.

Yesterday at MWC, Imagination Technologies Group plc (LON:IMG) and its partners announced a host of new products.

Significantly for IMG was the inclusion of its GPU in Intel's upcoming mobile products.

The points below, courtesy of the team at Liberum Capital, summarise yesterday's main developments. Imagination is holding an analyst meeting on Wednesday morning from which more details may emerge.



Liberum note:

"Intel Corporation (NASDAQ:INTC) announces new mobile products which include Imagination's GPU: There has been much speculation that Intel would drop Imagination's GPU from its upcoming mobile products and return to its own internal GPU. However, yesterday Intel announced two new mobile products (Merrifield, Moorefield) which both incorporate Imagination's GPU (PowerVR6).

"The ramp of these products in H2'14 should support Imagination's royalty revenue. Unusually for Imagination it did not put out a press release highlighting this design win with Intel, which we believe is a significant positive for the company.

"Imagination launches new IP: Imagination also announced a new IP block, Raptor, which is used for advanced image processing. The Raptor IP block is designed to enable context-aware applications such as facial and gesture recognition. Raptor was developed following Imagination's acquisition of Nethra in June'12.

"Imagination has been investing in emerging IP (Nethra, Caustic, Ensigma) which has not yet contributed to revenue. The Raptor IP should convert into near term licensing revenue and increase the royalty rate Imagination receives over time."

Elsewhere, Imagination Technologies Group plc (LON:IMG) also elaborated on the specifications of its latest high end GPU, 6650, which is part of the 6XT family, first announced at CES in January.

Action Semiconductor, a fast growing Chinese chip company, announced a host of new products based on Imagination's GPU.

Toshiba launched a new apps processor with integrated WiFi based on Imagination's emerging Ensigma IP.

Cavium showed a range of processors for wireless infrastructure which relied on MIPS CPU. MediaTek, a key Imagination graphics licensees showed a new chip (MT6732) which relied on ARM's GPU – we expect Imagination's share at MediaTek to trough in H2'14 and rebound thereafter flowing the recent licensing agreement.

"The inclusion of Imagination's graphics IP in Intel's latest mobile chips is a positive development. Following a rapid increase in R&D (at the expense of margin) Imagination now has a very broad array of IP which has not yet converted into revenue," say Liberum.

Analysts advise that they continue to see long term value in Imagination.

"We believe Imagination is worth >£3.85 if it hits its targets (50% of GPU, 25% of CPU, ramp Ensigma). On the other hand, we value the PV of Imagination's royalties at £1.75 (assuming the business is shut) suggesting limited downside. Buy," says a note on the matter.