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HTC facing backlash for S3 acquisition

Investors punish HTC's stock for its buy of chipmaker S3 Graphics, which is seen as a move to shore up its patent position.

Wall Street does not like HTC's decision to purchase S3 Graphics.

The HTC Thunderbolt may be among the first Android phones to get Skype video calling. CNET/ James Martin

Bloomberg reports that HTC's shares saw their largest drop in three weeks after Citigroup downgraded the stock's investment rating over concerns about the $300 million acquisition of S3 announced on July 6.

Many see the deal as a defensive measure as technology companies increasingly use the courtroom as a weapon in dealing with competition. HTC, which has its roots as a white-label smartphone maker but in recent years has broken out with its own brand, is seen as having one of the weaker patent portfolios relative to the likes of Apple or Samsung.

HTC is in a heated legal battle over patents with rival Apple.

Earlier this month, an administrative law judge for the U.S. International Trade Commission today determined that Apple was infringing on two patents owned by S3 Graphics, which is a Fremont, Calif., based chipmaker. The advantageous position would give HTC ammunition against Apple.

But Citigroup questioned whether HTC needed to even make the deal with S3, which Bloomberg notes is partly owned by HTC Chairwoman Cher Wang. The firm also lowered its estimates for HTC's sales for the year and for 2012, citing slowing growth in the global smartphone demand and increased competition.

An HTC spokesman wasn't immediately available for comment on the reaction to the deal.

HTC has been one of the standout companies, surging alongside the rising popularity of Google's Android mobile operating system. The company's phones, which feature its unique Sense user interface, are among the top selling devices at each of the U.S. carriers.