The move by Apple, Imagination’s largest customer, means the loss of lucrative royalty payments, reports the BBC.
Imagination said Apple would stop using its products in about “15 months to two years time”.
Apple is developing its own technology, but Imagination said this would be difficult without infringing patents.
Imagination relies on Apple for about half of its revenues, with the US giant using the UK firm’s chip technology in its iPhones, iPads, and iPods under a licensing agreement.
Apple has told Imagination that it 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 Financial Times reported last year that Apple, which owns 8 per cent of the UK company, had held talks about buying Imagination.
In its statement, Imagination questioned whether Apple would be able to develop its own computer chip designs without breaching its intellectual property rights.
The UK company said: “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.
“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.”