Why Shares In Imagination Technologies Group Plc Popped

Although we don’t believe in timing the market or panicking over every stock fluctuation, understanding how a company is performing, changing and competing is vital to sensible investment.

What: Shares of Imagination (LSE: IMG) climbed by 4% to 178p in early London trade this morning, after the chip-maker announced that its Ensigma platform will be used in the next generation of digital radios.

So what: Digital “DAB” radios are becoming cheaper and more prevalent, and Imagination has played an important role in this development to date. Since 2002 Imagination has partnered with leading audio manufacturer Frontier Silicon to bring new digital radio products to the consumer market. Today, more than 80% of DAB radios around the world are powered by UK technology. Underlining this, Imagination also announced today that STMicroelectronics have licensed Ensigma for use in a new generation of car radio.

Now what: It’s been a turbulent few years for Imagination shareholders. Between 2009 and Imagination’s share price peak in 2012, the shares delivered an astonishing 1,244% gain. Since that peak however, Imagination’s shares have been on the slide, falling 75% from that high point.

New licensing deals like the ones announced today should rightfully cheer shareholders, especially if the long-term potential is as encouraging as STMicroelectronics boss Mr Monti suggests: “As consumers quickly appreciate the advantages of digital radio in the car in the coming years, demand will grow”.

Over the long-term, the wide-spread adoption of Imagination’s technology will be decisive if Imagination’s shares are to live up to their expectations. After seeing their shares drop by 27% this month, today’s news will be a welcome reminder to investors that future deals and new products — not current levels of shipments — will help Imagination reach its full potential for shareholders.

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> Mark does not own Imagination. The Motley Fool owns shares of Imagination.