HTC gains imaging technology and patents with S3 purchase
In both respects, the $300m acquisition from VIA will strengthen its fight against Apple, boosting IPR defense and vertical integration
Published: 6 July, 2011
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HTC has paid a reported $300m in cash for S3, the graphics and imaging firm controlled by chipmaker VIA. The acquisition highlights two key aspects of the vendor's battle with Apple - the need to bolster its patent portfolio, amid tit-for-tat litigation with the iPhone maker; and the trend for phonemakers to gain control of key differentiating technology for their products, even at chip level.
This is a pattern set by Apple itself, with its investment in the A4 processor architecture, after years when most OEMs were reducing their inhouse R&D on the silicon side. HTC has been buying up expertise to enhance its Android devices and Sense user interface, but mainly on the software side. But now it has ventured into hardware, gaining graphics and image compression technology with S3. The compression system is used in gaming consoles such as the Nintendo Wii and Sony PlayStation, and will boost HTC's efforts to create a console quality experience on its handsets and tablets.
Achieving this milestone would be an important tactic for narrowing the gap with Apple, which has focused heavily on mobile graphics and games. The IPR owned by S3 could also strengthen HTC in its defense against Apple's lawsuits, which claim infringement of 20 patents related to the iPhone's user interface, architecture and hardware. HTC has hit back with its own countersuit and in acquiring S3, it gains a firm which only last week won a ruling against Apple, regarding two patents for compression technology. "Buying a patent portfolio will be very useful to us," HTC said. It will take on 235 patents, mostly related to graphics technology.
However, the IPR position of the Android community was weakened last week when Google failed to win Nortel's huge portfolio, a move that would have given it - and by extension its Android partners - a stronger counterweight against the patent mountains of Microsoft and Apple. Instead, these two heavyweights gained access to the Nortel assets when a consortium of vendors (also including RIM, Ericsson and Sony) paid $4.5bn for them.
Under the terms of the purchase, VIA still has the rights to use the technology and IPR associated with S3 in its x86-based chips for set-top boxes, mobile devices and laptops. It acquired S3 in 2001 to integrate graphics capabilities with its processors and chipsets, a forward looking move that anticipated, by five years, AMD's purchase of graphics chipmaker ATI (this was then sold on to Qualcomm in 2009). It holds a 12.5% stake in S3 directly, while the rest is owned by WTI Investment International, a holding company controlled by VIA and HTC's chairwoman, Cher Wang.
Vertical integration is the current trend among smartphone makers, as exemplified by Apple's tightly controlled hardware/software architecture, and it seems HTC aims to play the same game.
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