The Near Field Communication Chip Market Will Be Huge

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 |  Includes: AVGO, GOOG, NXPI, TXN
by: John Helzer

Near Field Communication semiconductors are chips built to a specific set of RFID standards that allow smartphones and similar mobile devices the ability to communicate with each other by touching them together or bringing them into close proximity, usually no more than a few centimeters away from each other. Applications for use are payment transactions and data exchange. The difference between Near Field Communication or NFC and Bluetooth enabled devices is one of speed, power and convenience. NFC chips operate at slower speeds than Bluetooth chips, but consume far less power. Plus, you do not need to set up the initial "pairing" between the devices. This is done automatically when the two devices come close together, usually less than 4 centimeters away from each other.

NFC-equipped mobile phones are more common in parts of Asia, particularly in Japan, than in Europe and the US. In 2011, more than 40 NFC enabled smartphones were released. According to analyst firm Berg Insight..3/26/12 of news archives:

Global sales of handsets featuring Near Field Communication increased ten-fold in 2011 to 30 million units. Growing at a compound annual growth rate [CAGR] of 87.8 percent, shipments are forecasted to reach 700 million units in 2016.

The top Near Field Communication chip suppliers in 2011 was NXP Semiconductor (NASDAQ:NXPI). NXP supplies NFC solutions to almost all Android devices thanks to its close relationship with Google (NASDAQ:GOOG). For instance, Samsung's Galaxy series (Nexus, S2, S3) and Sony's Xperia S adopt the NFC solutions provided by NXP. The #2 NFC chip supplier in 2011 was the fabless French company Inside Secure (INSD:EN Paris) on the strength of their sales to RIM (RIMM) starting in 3Q of 2011. In December of 2011, Inside Secure announced a deal to supply NFC technology to Intel (NASDAQ:INTC). Broadcom (BRCM) bought Innovision Research and Technology in 2010 for their NFC expertise. Towards the end of last year, Broadcom announced their own standalone NFC chip. It is expected that Broadcom will be adding NFC to their popular Combo chip (Wi-Fi, Bluetooth, and FM radio) sometime in the future. Texas Instruments (NASDAQ:TXN) on Feb 13, 2012 announced a new 5 in 1 combo chip WiLink 8.0 that incorporates the NFC, Wi-Fi, Bluetooth, GPS, and FM radio all in the same chip.

TI, one of the largest suppliers of chips to smartphone makers, said it expects the first devices carrying its new combo chips to ship in the second half of 2012. The chip maker introduced five variations of the WiLink 8.0, and two of these support NFC, including the WL189x, which packs in five radio technologies, including NFC, Bluetooth, WiFi, satellite positioning and FM radio. The chip is "tailored for smartphones, tablets, eBooks, ultrathin computing devices and other feature-rich mobile products," said the chip maker. The other chip supporting NFC in the family, the WL185x, will include all of the wireless technologies except global positioning and will be targeted at mid-tier devices, TI said.

Qualcomm (NASDAQ:QCOM) has also announced NFC capabilities, and more importantly, rumors abound that Apple (NASDAQ:AAPL) IPhone 5 will include NFC hardware. Obviously, this will be the defining slot for the NFC chip suppliers if the rumors are true.

Competing US Infrastructures

Google has also introduced Google Wallet available on the Sprint (NYSE:S) Network using MasterCard PayPass. The other 3 major telecommunication network companies, Verizon (NYSE:VZ), AT&T (NYSE:T), and TMobile, have formed their own consortium called ISIS to standardize on a different infrastructure that they will be rolling out in the 2nd half of 2012. They have teamed up with American Express, MasterCard, Visa and Discover. (Note: Google Wallet is blocked on the 3 ISIS carrier partners.)

PayPal (NASDAQ:EBAY) has also introduced an Android app that allows you to transfer money from one NFC equipped mobile phone to another.

Conclusion

NXP Semiconductor and Inside Secure had a significant headstart on others in the NFC market. Now that Texas Instruments, Broadcom, Qualcomm, and possibly Intel have entered the market with integration with other radios, prices for NFC chips will decline. I suspect the all important Apple iPhone 5 slot will define the Big chip winner this year in this space. The Apple slot will also reveal whether it will be Google Wallet or ISIS that wins out on the US infrastructure battle. In my opinion, it's too early to tell which chip supplier will win the Apple slot, but all 5 current NFC chip suppliers will benefit over the next few years due to the speed of growth and size of the market.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.