HTC Stock Drops on S3 Acquisition News

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HTC recently announced its planned acquisition of graphics chipmaker S3 from VIA Technologies. While the $300 million deal was approved by the companies’ respective boards, it seems investors are not too pleased.

While the HTC acquisition of S3 was supposedly a way to bolster the company’s technology holdings, it seems Wall Street is not too happy with the move. Investment bank Citigroup has downgraded HTC’s stock investment rating three weeks ago. Investors seem to have reacted negatively to the acquisition news, as the stock price has experienced its largest drop since.

Analysts say that  the share price drop is due to concerns that the acquisition makes HTC look weak compared to its major competitors when it comes to technology patents. HTC had originally been an ODM manufacturer, but has since moved on to become a big brand in the mobile industry. But HTC does not have as big a patent portfolio as, say, Apple, Samsung or Nokia, which means it usually needs to work around these, or get into licensing deals. Buying S3 — along with the patents it owns — has been seen as a defensive move on HTC’s part.

Along with other companies, HTC is also in legal disputes with Apple over technology patents. A judge has recently determined that Apple has infringed on two patents owned by S3. This means that HTC acquiring S3 will effectively give them more legal ammunition against Apple in their patent disputes.

Analysts have even downgraded their sales expectations of HTC. We’re not exactly sure where this will lead to, but HTC is said to have had a rapid growth after being bolstered by Android’s popularity. Will this be sustainable? Or is HTC worried?