Today's Falling Knife: Imagination Technologies Group Plunges 19%

LONDON -- Imagination Technologies Group fell a massive 19% in early trading, down 80 pence to 344 pence, following a profit warning in its year-end trading update.

The maker of micro chips -- which counts Apple as one of its main customers -- announced that several deals have been delayed, due to "structural and organizational changes among a number of semiconductor partners in various regions," and that these would impact upon licensing revenues for the year to the tune of around 27 million pounds, down 22% year on year.

Management stated their belief that the problems are only short term "related to the 'lumpy' nature of licensing revenues," and reiterated that it continues to have an active pipeline of licensing engagements. For FY2014, it forecasts licensing revenue to be in the range of 30 million pounds to 35 million pounds.

Elsewhere, Imagination Technologies saw significant growth in its shipment unit volume, with annual shipments in excess of 500 million units. It was mentioned, though, that not all partner shipment reports had been received for the first quarter of CY2013.

Chief executive Hossein Yassaie said:

While we continue to see strong demand for our technologies, we are disappointed that the licensing revenues are below our expectations in this period. Despite these short-term timing issues, we continue to see growing partner engagements across our key technologies-these include a number of very significant, strategic deals.

The volume shipment ramp up continues apace toward our target of one billion units in 2016 (excluding MIPS) while the licensing pipeline remains as active, strong and sound as ever.

Operating costs remain in line with management's expectations, while year-on-year growth has outperformed its targets following additional investments in strategic research and development programs, and is expected to return to normal levels of 18%-20% in FY2014.

Whether today's news represents a buying opportunity at these levels is, of course, up to you, but make sure you do your homework before committing. Imagination has seen some vast growth over the years, increasing more than 12-fold from 2009's low of 57 pence to 717 pence last year. It hadn't reached today's lows since 2011 when it was journeying up to its five-year high.

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