Apple is Imagination's largest customer, accounting for around half its revenue, and one of its biggest shareholders.
The firm, headquartered in Hertfordshire, supplies microchip technology for Apple products including iPads and iPhones.
However, Apple has announced plans to develop its own substitute and phase out Imagination in the next "15 months to two years".
In a statement, Imagination said it had seen "no evidence to substantiate (the) assertion" that Apple would be able to manufacture its own version of the technology without violating patents and intellectual property.
Russ Mould, investment director at AJ Bell, said: "This is a juddering setback for Imagination, whose shares had begun to run strongly under chief executive Andrew Heath.
"Today's plunge takes Imagination back to levels last seen in 2009 and leaves the shares way adrift of 2012's peak north of 700p."
Imagination has begun talks with Apple in the hope of agreeing "alternative commercial arrangements for the current licence and royalty agreement", which is worth tens of millions of pounds to the firm per year.
The alternative could be an expensive intellectual property battle in the courts.