View from Manchester: Imagine there’s no Imagination

The breaking story that Imagination Technologies’ Chinese owners may be seeking to take greater control of the UK graphics-to-AI company has alarmed senior MPs, although there is also concern that it may be too late and too difficult for the government to act.

Reports on Saturday and Sunday (April 4-5) said that the chairs of four House of Commons select committees had written to the Prime Minister, amid claims that an emergency board meeting as soon as tomorrow (April 7) could see owner Canyon Bridge Capital Partners add four Chinese directors to Imagination’s board as a prelude to moving the company’s location and thereby oversight of its technology from the UK to China.

Tom Tugendhat MP, chair of the Commons Foreign Affairs Committee and one of the letter’s signatories, says, “I think the UK has been blind to an emerging situation for too long. I think we’ve been so obsessed, so worried about Brussels that we have done nothing about the growing grip of Beijing.”

Imagination has not confirmed that the specific move has been tabled or any board meeting scheduled, but did say today (April 6) that it is reviewing “possible changes to the operational, governance and investment structure of the company” and that “these discussions are still ongoing”. (Its statement appears in full below)

A particular source of concern is that Canyon Bridge’s main investor is China Reform Holdings, an investment group with close links to the Beijing government.

China Reform’s chairman Liu Dongsheng says in the group’s mission statement that it “adheres to the guidance of [Chinese president] Xi Jinping’s new era of socialism with Chinese characteristics and the spirit of the 19th National Congress of the Communist Party of China.” To that end, the fund has been closely involved domestically with improvement and extension of the operation and influence of China’s state-owned enterprises.

In this context, Imagination’s attractions for Beijing are many and significant. The company’s portfolio would map closely to several key technologies within China’s relevant national economic plans, such as Made in China 2025 and the national artificial intelligence strategy.

In terms of semiconductor design – recently given greater priority alongside chip manufacturing by Beijing in its second ‘Big Fund’ investment programme – Imagination is active in emerging graphics IP that exploits ray tracing (a technique that enhances on-screen lighting) and development around the open-source RISC-V processor core (increasingly seen in China as a viable alternative to the market-leading Arm core family).

Moreover – and potentially a greater issue from the perspective of UK national security – Imagination is one of many companies with a background in graphics that are using their resulting expertise in parallel processing to develop neural network accelerators for AI applications.

From the contrasting UK perspective, there are issues around jobs as well as future UK innovation for critics of a move to China. Imagination employs about 900 people worldwide, with roughly two-thirds in Britain. Initially, it would be unlikely that much of the engineering side would be affected because of work-in-hand and the skills they have.

“It’s not a short-term jobs issue, it’s a long-term one. It’s not about 600 or so UK jobs moving to Beijing or Shenzhen tomorrow ,” says Tugendhat. “But it is about an entire industry being stripped out of the UK, with the next wave of investment and the next generation of technology not coming here, but going elsewhere and leaving the UK very far behind.”

Analyst Malcolm Penn, CEO of Future Horizons, agrees that the move could have implications for future UK innovation, with Chinese-based engineers having more options to fork Imagination’s existing IP alongside UK colleagues, and later take over as its main creators. “We still haven’t realised just how good China is getting at design,” he says.

“In many ways, they don’t care as much about manufacturing now for advanced work. For the time being they’re happy to leave that to [Taiwanese semiconductor foundry] TSMC, so they can concentrate and catch up on the real stuff, the design. And they’re doing it.”

In addition, moving Imagination’s base would have a political side.

Chinese technology companies have become more wary of using Arm technology as a result of the de facto restrictions the Trump administration imposed on its use by Huawei last year. That has already seeded fast-ramping local R&D around RISC-V. Again, Imagination would offer greater and domestic design alternatives for everything from handsets to the Internet of Things and automotive (already a large end market for the UK company).

Further, China could, some analysts believe, even use Imagination’s IP as a tit-for-tat weapon in its ongoing trade and technology disputes with Washington.

Apple renewed its licensing relationship with Imagination in January (an earlier break-up between the two wounded the UK company badly, leading to its sale to Canyon Bridge). The new deal is thought to be based around access to Imagination’s ray-tracing technology. With Imagination based in China, Beijing could potentially block Apple’s access, disrupting iPhone and iPad design, in retaliation for the measures taken against Huawei.

So, there are grounds for at least close review of any changes that may be proposed. But there are two big questions facing the UK government.

First, given that Imagination’s technology portfolio was clear when it was acquired by Canyon Bridge in July 2017 and that the deal was announced and submitted for approval in the UK after the Trump administration had blocked the same fund’s bid for Lattice Semiconductor on national security grounds (specifically, a week after when the block was still making global headlines), why did the UK approve the deal in the first place?

Second, what can the government do now, particularly given how many of Whitehall’s resources are concentrated on Covid-19 and that Imagination is, after all, legally owned by Canyon Bridge? There is also likely to be fear in government of setting potentially dangerous precedents over M&A (mergers and acquisitions) and foreign ownership that could bite the UK when it can finally turn its attention to post-Brexit global trade negotiations.

There certainly is widespread irritation that Canyon Bridge and China Reform appear to be moving while the government is distracted. Tugendhat notes, “If it looks like a duck, if it acts like a duck, it’s probably a duck.”

Nor is this arguably the first time: the original Imagination acquisition bid was unveiled during Parliament’s Brexit paralysis. Then in a parallel, commentators such as David Manners have noted that the acquisition of Arm by Japan’s Softbank – another deal many technology experts thought should have faced much greater scrutiny – was announced in July 2016 during Theresa May’s first week in office as Prime Minister, while her ministerial team was still moving into place.

Tugendhat believes that the government can still intervene to block or mitigate the situation. “I think the government has various options but I’m not going to do the government’s lawyers' job for them. And I’d agree that we’re acting late, but that doesn’t mean we can’t act at all.

“Seeing a major UK company be asset-stripped and then restarted hundreds of miles away, probably diminishing the quality of its output, is extremely concerning, and not just for the UK, but for the world.”

Penn however is less optimistic. “It’s already a Chinese company. The time to do something was two years ago. It’s hard to see what they can do now.

“It goes back again to the fact that we don’t have a real technology policy. We don’t really think about these things until, here we are.”

There is though, according to a former government special adviser, one unknown factor in the entire situation: Dominic Cummings. The Prime Minister’s chief adviser has advanced an overhaul of UK technology policy as a priority, including already securing launch money for a UK equivalent to the American Darpa and Arpa-E R&D agencies.

“He might say, ‘S*d it, done deal, move on’ or, ‘Well, they can p**s off, not happening,’” the ex-SPAD says. “We might find out which pretty soon. This would definitely be his kind of thing.”

Cummings was coming towards the end of a period in coronavirus self-isolation as this article went to press, and whatever does happen over Imagination’s future, the story looks far from over.

After all, the mood in politics towards all things Chinese is becoming increasingly febrile, as Covid-19 continues to take a toll on the UK and large parts of the government itself, leading to increasing talk of a ‘reset’ in Sino-British relations.

As noted above, Imagination issued the following statement regarding stories suggesting the company could move its base from the UK to China earlier today (April 6). It reads in full:

“The Board of Imagination Technologies is considering a number of strategic options in order to continue the transformation and growth of the business around the world.  This includes possible changes to the operational, governance and investment structure of the company. 

“Any changes will be compliant with relevant laws and regulations of the UK and other countries in which the company operates.  Similarly, any changes will benefit the company’s headquarters and global business development. These discussions are still ongoing and our priority remains our customers and staff.”

We reached out to the relevant government departments for comment for this story, but, in the light of the pressures the Covid-19 crisis is placing upon them, they had not been able to respond as it went online. This article will be updated as and when those responses arrive.