Imagination Tech profits fall on death of Sega Dreamcast

UK-based Imagination Technology, the company behind the PowerVR chip that powers - sorry, powered - the Sega Dreamcast's 3D graphics and STMicroelectronics' Kyro chip hasn't exactly had a great year.

While its revenues for the year to 31 March showed a modest rise of a fraction over five per cent, its profits fell a rather more significant 30 per cent.

Imagination - best known for its main subsidiary, VideoLogic - recorded revenues of £17.8 million, compared to £16.9 million for the year to 31 March 2000. Pre-tax profits fell from last year's £4.7 million to £3.3 million, leading to meagre 1.6 pence per share earnings.

Still, the company ended up with £12.4 million in cash, compared to £10.1 million last year.

Looking ahead, it's hard to see how the company can improve matters. It's big cash cow, licensing PowerVR to Sega, is now no more - Sega ended Dreamcast production on the last day of Imagination's fiscal year. The Sega deal contributed strongly to Imagination's 75 per cent gross margins, though its profitability was hit hard in the second half the year, chairman Geoff Shingles admitted. True, satellite TV decoder specialist Pace licensed Dreamcast technology, but it's too early to say when - or if - it will begin contributing to Imagination's bottom line.

Instead, Imagination is looking to its new DSP business - not exactly a sparse market, though - and its tie-in with ARM to build PowerVR graphics into ARM's CPU technology as revenue generators for the year ahead. Given ARM's very strong presence in the mobile device arena, Imagination stands to do rather nicely from the tie-in, but again it's up against some stiff competition from Nvidia and ATI, both of whom are pursuing opportunities to get their own graphics technology into new applications.

Both the Meta DSP and the PowerVR/ARM parts are still in the prototype stage, so it's hard to judge to what extent they will contribute to Imagination's bottom line this year. Neither has yet won the company any business - at least as far as it's admitting to shareholders.

Still, the company is hopeful. "Looking ahead we will continue to implement apace our plans to build a much wider intellectual property (IP) capability and we will continue to widen our partnerships. We expect this to build new revenue streams leading to a resumption in revenue growth in the second half of this financial year," said Shingles. ®