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Shares of HTC, a leading maker of smartphones, took a noticeable hit after the company acquired S3 Graphics, a designer of graphics processing technologies, as analysts and investors were displeased with the spending of $300 million.

S3 Graphics was co-owned by Via Technologies as well as WTI investment company, both of which are controlled by Cher Wang, the chairwoman of HTC. Analyst Kevin Chang of Citigroup believes that such transaction represents a conflict of interests as it involves a number of related parties.

"If HTC had licensed the patents instead of making the acquisition, concerns of corporate governance could have been alleviated," Mr. Chang wrote in a note to clients and cut his targets for the stock, reports Bloomberg news-agency.

HTC disagrees that the spending was unjustified or the acquisition was not transparent.

“This is a transaction involving related parties, but it’s certainly not the case that we could never have these types of transactions. The valuation of the S3 Graphics deal was assessed independently and the transaction is “transparent,” said Winston Yung, chief financial officer of HTC.

Under the terms of the agreement, HTC will get 235 computer graphics related patents. Among the patents are key texture compression technologies that are licensed even by Microsoft Corp. for DirectX application programming interface. HTC hopes that those patents will help it in its legal battles against Apple. Besides, S3 Graphics may pave the way for HTC to start designing its own chips for smartphones.

Tags: HTC, S3 Graphics, Via Technologies, Business

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