HTC's fate up in the air

HTC faces an uncertain future.

The Taiwanese company, which makes a number of very popular smartphones including several Android OS models, is feeling the impact of an administrative law judge's initial ruling for the U.S. International Trade Commission last week, which found HTC in violation of two of Apple's patents. HTC's stock in retreated more than 4 percent on the Taiwan Stock Exchange to its lowest level in six months, Bloomberg reported today.

While an administrative law judge's initial decision doesn't represent a death blow, it doesn't bode well for the final decision. If the six-member ITC panel agrees with the judge's decision, it could impose an embargo preventing the importation of HTC smartphones.

HTC has vowed to fight the decision and plans to appeal before a final ruling is made.

HTC Chief Financial Officer Winston Yung told Dow Jones Newswires that it plans to appeal the preliminary ruling. Yung also didn't rule out pursuing a settlement, saying the companies "should keep in touch," and that "we can talk anytime."

When the judge's ruling was made public last week, Apple responded by referring back to its initial statement in March 2010 when the first complaint was filed.

"We think competition is healthy, but competitors should create their own original technology, not steal ours," Apple CEO Steve Jobs said in the release at the time.

Giving HTC some hope is its recent decision to acquire S3 Graphics for $300 million. S3 holds crucial patents that an ITC administrative law judge had determined in an initial ruling that Apple was violating.

While investors initially lambasted HTC's decision to acquire S3--criticizing the fact that HTC Chairwoman Cher Wang was a shareholder in S3--the patents will be invaluable if the ITC decides to favor Apple.

Foss Patents, a software patent blog, has an interesting--if somewhat complex--graphic illustrating HTC and Apple's respective patent positions.

In positions where both companies own valuable intellectual property, a settlement is typically reached, especially if the threat of an embargo hangs over one of the companies. But Foss' Florian Miller said he doesn't see a settlement as a foregone conclusion. Unless Apple truly needs all of HTC's patents, it may attempt to enforce the embargo, which would greatly hurt the progress of HTC and all Android supporters.

The next couple of months will likely be turbulent ones for HTC.

Updated at 11:36 a.m. PT: Adds comment from HTC financial chief.