Imagination Technologies's shares fell by as much as 70 per cent this morning following news that Apple plans to stop using the company's PowerVR graphics technology.
Instead, Apple will use its own in-house developed graphics technology in its iPhones and iPads, in a move that would cut the company's revenues in half.
However, Imagination also warned that Apple would struggle to develop its own graphics technology without either licensing or infringing some of Imagination's own graphics intellectual property.
Imagination admitted in a statement today that Apple plans to stop licensing the company's designs within "15 to 24 months" in favour of its own graphics technology that it is developing in-house.
The news comes a year after rumours that Apple was in advanced talks to acquire the company. Instead, Apple hired a number of design staff from Imagination when the two companies failed to reach an agreement.
Apple's own graphics technology could make a debut in next year's iPhone, which would be the first to feature an A-series chip with both a fully Apple-designed CPU and GPU.
"Apple is working on a separate, independent graphics design in order to control its products and will be reducing its future reliance on Imagination's technology," the company said in its statement.
This news is a major blow for Hertfordshire-based Imagination Technologies, which currently relies on Apple for about half of its revenue and will likely stop receiving royalties on iPhone and iPad devices within the next two years.
Apple also holds an eight per cent stake in the company.
However, Imagination has warned Apple that its attempts to go it alone risks infringing its intellectual property rights.
"Apple has not presented any evidence to substantiate its assertion that it will no longer require Imagination's technology, without violating Imagination's patents, intellectual property and confidential information. This evidence has been requested by Imagination but Apple has declined to provide it," it said.
"Further, Imagination believes that it would be extremely challenging to design a brand new GPU architecture from basics without infringing its intellectual property rights, accordingly Imagination does not accept Apple's assertions."
The company also pointed out that it is discussing "potential alternative commercial arrangements" with Apple.
Intel wants to get inside your car, despite missing out on mobile
'We'll keep fighting to fight to keep the web free and open,' claim EFF
Breached in March by the same attackers, claim 'insiders'
And all for less than £150, according to Keith