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Court cases could hurt VIA's sales

Accusations of intellectual property rights infringement against senior executives at Taiwan's largest chip designer, VIA Tech-nologies Inc (威盛電子), are expected to hurt sales next year, analysts said yesterday.

On Friday, the public prosecutor of the Taipei District Court accused VIA chairwoman Cher Wang (王雪紅) and her husband Chen Wen-chi (陳文琦), president of the company, of stealing technology from one of their networking product clients, D-Link Corp (友訊科技), of spying on the company and breaching its trust.

"There has been no major impact on VIA's business yet, but many networking product clients are currently reviewing their orders," said Nathan Lin (林宗賢), an analyst at SinoPac Securities Corp (建華證券). "If the courts announce that VIA did actually infringe D-Link's copyright, they will withdraw their orders."

Other legal disputes with Intel over patent infringements seriously hurt VIA's core business of chipsets this year, and news of more time in court for the beleaguered company could hurt it further, a Goldman Sachs report said.

"We believe VIA may need to cut prices further to maintain market share going forward following damage to its franchise," the report said.

In the first 11 months of this year, VIA has seen its sales drop by almost one fifth to around US$550 million from US$680 million a year ago.

Another investment house is advising investors to drop VIA shares.

"We are maintaining our negative view on VIA heading into seasonal weakness along with the overhang of two lawsuits," a Smith Barney report said.

The prominent couple denied the charges publicly on Wednesday evening, which a senior official at VIA confirmed yesterday.

"VIA strongly believes that no wrongdoing has occurred in this case, and the charges that have been made are based on misunderstandings of the actual circumstances," VIA spokesman Richard Brown told the Taipei Times in an e-mail statement yesterday.

Brown also dismissed any negative impact on sales.

"We have been in very close contact with all our customers in the past few days, including those buying our networking chips, and have experienced no cancellations of orders," Brown said.

"In fact, the response from our customers has been overwhelmingly supportive. D-Link, by the way, is still a very important customer of VIA's and we continue to work with them closely," he said. "As for investors, we have also communicated very closely with them, and held a conference call for overseas investors on Monday which was very well attended. So far we have not received any indications that there are investors are considering pulling out."

A report from Credit Suisse First Boston in Taipei also downplays the impact of the court cases, saying that it may take up to two years before a decision is reached and VIA doesn't even sell the product under dispute.

"It would be difficult for D-Link to prove that its business has been hurt by VIA's products and then ask for compensation," the report said.

There may be even more bad news ahead for VIA. Chairwoman Wang predicted Wednesday that VIA's fortunes would turn around next year as sales of new products like a multimedia computing system for the home take off.

"I don't really agree as next year's desktop shipments will be flat and VIA is focused on chipsets for desktops," SinoPac's Lin said. "The new integrated home platform will be a major growth driver next year, but compared to the chipset business, it will only be a small percentage of sales."

"VIA could not provide Intel chipsets for many years, so they have been trying to play catch up," Lin said. "I think they may catch up next year, but now there are many more competitors," including Taiwan's Silicon Integrated System Corp (矽統) and Nvidia Corp from the US.
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