HTC Purchases S3 Graphics—It's More Important Than You Think

VIA announced today that it's signed an agreement to sell its share in S3 Graphics to the mobile phone manufacturer HTC. S3's GPU technology (dubbed Chrome) powers VIA's various chipsets and is paired with the company's Nano processor as part of its CPU platform. Given VIA's relative sliver of market share, this might not seem like an important transaction—but it is.

It's been over a decade since S3 was a major player in the graphics display industry; the company's 2D 'Trio' series of video cards were quite popular in the pre-3D era. S3 attempted to enter the 3D market, but the company's ViRGE products performed so abysmally, they earned the nickname '3D Decelerators.' The company followed the ViRGE with the Savage 3D and Savage 4 architectures, but never managed to produce a competitive 3D part. It was eventually purchased by VIA; its GPUs were integrated into that company's motherboards.

Multiple companies brought S3-based cards to market, but the company ultimately stopped building discrete GPUs.

S3's one lasting contribution to the 3D industry and the reason we're talking about the company today, was S3 Texture Compression (dubbed S3TC, alternatively known as DXTC). When it debuted the Savage 3D architecture in 1998, S3 also demonstrated an algorithm that could be used to compress a 4x4 block of pixels to 1/6 (24-bit) or 1/4 (32-bit) of their original size. Since both memory bandwidth and total video card RAM were at a premium back then, S3's technology was widely adopted. Microsoft incorporated S3TC support into its DirectX 6.0 standard; S3TC remains in widespread use today.

On July 1, Apple was found guilty of infringing two S3TC-related patents. Six days later, we see HTC buying S3 Graphics for some $300 million (VIA and S3's primary investment holder, WTI Investment, will split that amount $147M/$153M respectively). Meanwhile, the burgeoning success of NVIDIA's Tegra platform means S3TC support is going to be increasingly important to mobile devices. Like the 3D accelerators of yesteryear, mobile devices are tasked with squeezing high performance from minimal amounts of RAM and limited device bandwidth. HTC's decision to buy S3 on the heels of the ITC decision is well-timed indeed.

According to VIA's Board Director, Tzu-Mu Lin, "The transaction would allow VIA to monetize a portion of its rich IP portfolio, yet retain its graphics capabilities to support the development and sale of its processors and chipsets. We wish to thank WTI for its capital contribution to support S3 Graphics since 2005." This implies that VIA has retained some degree of access to S3's GPU IP. The scope and length of that agreement are unknown, though it presumably covers products based on the most-current IGP technology VIA has to offer.

We strongly suspect that HTC bought the S3TC patent more than it bought S3 as such. While it could definitely repurpose the company's efforts towards developing its own mobile GPUs, the patent is both a revenue stream and a bargaining chip it can use to bring other major players to the table. S3TC's capabilities are important--quite possibly important enough to change the balance of power among mobile device developers.