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HTC buys S3 Graphics in $300 million deal

Smartphone specialist HTC is to buy low-power processing specialist VIA's stake in graphics specialist S3 Graphics, the company has announced today, giving HTC a potential weapon against Apple.

HTC is perhaps best known for partnering with Google to produce the world's first Android handset, the HTC Dream. Sold in the UK as the T-Mobile G1, it wasn't a terrific success but help did catapult Android to its current position as one of the fastest growing mobile platforms in history.

Google may have chosen to give the job of developing own-brand handsets to Samsung these days, but HTC still makes a wide selection of Android-powered handsets alongside its Windows Mobile offerings, all tied together with the company's user interface layer, Sense UI.

Low-power specialist VIA purchased S3 Graphics in 2001 for almost $150 million, intending to use the company's know-how to integrate high-performance 3D graphics into its low-power chips in a similar manner to AMD's Fusion platform is doing now. Unfortunately, S3 started to run out of money in 2005, and VIA was forced to sell some shares to a private investment company started by its chair Cher Wang, WTI Investment International.

While S3's texture compression technology is widely used, the company's hardware division has suffered in recent years and is now a bit-player in a market dominated by AMD and Nvidia. As a result, VIA and WTI are looking to cash in their chips, and have found a buyer in HTC.

Under the terms of the deal, HTC - which is already a part-shareholder in the company - will pay $300 million for the outstanding shares, with VIA receiving $147 million and WTI receiving $153 million. The upshot is a capital gain of $37 million for VIA, with paid-in capital of $115 million as a result of the sale.

"The transaction would allow VIA to monetise a portion of its rich IP portfolio, yet retain its graphics capabilities to support the development and sale of its processors and chipsets," claimed Tzu-mu Lin, VIA's board director. "We wish to thank WTI for its capital contribution to support S3 Graphics since 2005."

Thus far, HTC hasn't publicly commented on why it feels the need to acquire S3. It's easy to make a guess, however: Apple.

The Cupertino-based fruit-themed company's iOS platform has proven popular for both the iPhone smartphone line and the iPad tablet line. With HTC competing in both areas - from its range of smartphones to the newly-launched HTC Flyer 7-inch tablet, which goes head-to-head with the iPad - it clearly feels the need for a bit of ammunition to help it along the way.

S3 can provide precisely that: a recent ruling by Judge E. James Gildea has found Apple guilty of infringing patents held by S3 Graphics relating to texture compression technologies in graphics processing devices. By purchasing S3, HTC now owns those patents, and can use them as a threat to keep Apple off its back or cash them in by demanding royalties and damages from its rival.

The deal has received the nod from all involved parties, and will go ahead pending the usual regulatory approval. monitors all leading technology stories and rounds them up to help you save time hunting them down.