Smartphone maker HTC to buy chip firm S3 Graphics for $300M

With the acquisition, HTC will gain 235 patents, including some subject to ongoing litigation against smartphone rival Apple

Smartphone vendor High Tech Computer (HTC) will acquire graphics chip maker S3 Graphics for US$300 million, strengthening its patent portfolio in the process.

With the acquisition, HTC will obtain S3 Graphics' portfolio of 235 patents and pending applications, including a number covering graphics visualization technologies.

"S3 Graphics' patents are highly complementary to HTC's existing innovations and multimedia capabilities," said HTC CEO Peter Chou.

Some of those patents are already the subject of litigation against other smartphone vendors, and the deal should help HTC protect itself from patent litigation in the future, according to analysts.

"In the smartphone and tablet business, there are a lot of patent lawsuits," said BNP Paribas analyst Laura Chen. "S3 has a lot of patents, and HTC needs more bargaining power in the smartphone business."

On July 1, a U.S. International Trade Commission judge ruled that Apple infringed on some of the claims contained in two S3 Graphics patents. Judge E. James Gildea found that Apple infringed on U.S. Patent No. 6,658,146 directed to systems and methods for compressing images and U.S. Patent No. 6,683,978 directed to image data formats, both of which belong to S3 Graphics.

Apple and HTC are no strangers in intellectual property litigation. In March last year, Apple sued filed a lawsuit against HTC for infringing on 20 Apple patents related to the iPhone's user interface, underlying architecture and hardware.

HTC is buying S3 Graphics from Via Technologies, a Taiwanese chip design company that sells x86 processors in competition with Intel, and from private investment firm WTI Investment International. HTC chairperson Cher Wang is also chairperson of Via Technologies and a significant shareholder in WTI.

Ownership of S3 Graphics' patents will change, but "HTC will provide a perpetual license of the S3 patents to Via," HTC CFO Winston Yung said.

The transaction will allow Via to retain its graphics capabilities to support the development and sale of its processors and chipsets, said Via Senior Vice President Tzu-mu Lin.

The deal has received approvals from the boards of directors of HTC and Via. Subject to regulatory approvals and other customary conditions, they expect the transaction to close by year end.

HTC announced its second quarter results on Wednesday, with revenue of NT$124,398 million, more than double that in the same period a year ago.

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Tags consumer electronicsVia Technologiesintellectual propertypatentlegalsmartphonesComponentsHigh Tech ComputerS3 GraphicsGraphics boards

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Alan Patterson

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