HTC Shares Fall as Buyback Fails to Counter Impact of Apple Patent Ruling

HTC Corp. (2498) fell in Taipei trading after the U.S. International Trade Commission ruled its Android- based mobile phones infringed two Apple Inc. (AAPL) patents.

Asia’s second-biggest maker of smartphones declined 4 percent, the most since July 13, to NT$871 at the 1:30 p.m. close in Taipei, while the benchmark Taiex index lost 0.4 percent.

Today’s trading was the first chance the market had to react to the July 15 ruling, which HTC says it will appeal and is subject to review by the full commission. HTC has its own patent complaint against Apple at the commission, which could ban imports of some HTC phones that run on Google Inc. (GOOG)’s Android operating system if the decision is upheld.

“We expect HTC’s share price to be volatile in the next 12 to 18 months due to these lawsuits,” said Daniel Chang, an analyst at Macquarie Group Ltd. in Taipei. “Longer term, the cost of Android phones is likely to rise gradually and impact either market share or margin.”

In its complaint, Cupertino, California-based Apple had accused HTC of violating 10 patents involving how operating systems work on mobile phones. Administrative Law Judge Carl Charneski found it infringed two of them.

“While this is not the best outcome, the ITC ruling should still beat the market’s expectations,” Chialin Lu, a Samsung Securities Co. analyst, wrote in a report today. “The two violated patents are less critical and are seemingly unrelated to the usage of multi-touch and the core of the Android operating systems.” Lu kept a “buy” rating on the stock.

Share Buyback

HTC, based in Taoyuan, northern Taiwan, will purchase as many as 20 million of its own shares by Sept. 17, it said July 16, a day after the patent ruling was announced.

Half of the repurchased shares will be transferred to employees, and the remainder canceled. The company will also pay a 2010 cash dividend of NT$37 per share, and 50 shares for each 1,000 currently held, on July 20.

The share buyback could “provide near-term support,” Chang wrote in a report. He has a “neutral” view on HTC.

HTC agreed on July 6 to buy S3 Graphics Co. for $300 million after the maker of video-game graphics chips won an infringement ruling at the trade agency against Apple. The findings in HTC’s patent complaint against Apple at the commission are scheduled to be released Sept. 16.

The ITC is a quasi-judicial arbiter of trade complaints that has become the venue of choice for resolving patent disputes. Nokia Oyj, which had been targeted in the same ITC complaint, reached a settlement with Apple last month. Mountain View, California-based Google wasn’t a party in the case.

To contact the reporters on this story: Weiyi Lim in Singapore at wlim26@bloomberg.net; Yu-Huay Sun in Taipei at ysun7@bloomberg.net

To contact the editor responsible for this story: Anand Krishnamoorthy at anandk@bloomberg.net

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