Much has been written about the Near Field Communication chip market which enables mobile payment systems such as Google's (GOOG) Google Wallet available on Sprint (S) or the competing system from the ISIS consortium owned by AT&T (T), Verizon (VZ), and T-Mobile.
These mobile payment systems require a Near Field Communication or NFC controller chip and a secure element chip. The secure element is an encrypted tamper proof smart card chip enabling secure mobile payment transactions. The secure element chip can be integrated in SIM Cards favored by the Telco's consortium ISIS or embedded in the handset favored by Google Wallet, or in a microSD card.
The battle over where it resides is about who will be able to receive revenue from the payment apps and systems. Think of it as what evolved over time with the Apple (AAPL) iPhone and iPad market. The Telco carriers provided the infrastructure and received revenue from the customers based on usage and Apple who built the platform receives revenue from their hardware and their App store. If the chip resides in the phone's motherboard then the smartphone maker controls who then can rent space on the chip. If it resides on the Telco's SIM card then the Telco carrier is in control.
But in either case a secure element microcontroller is needed for tamper proof payment transactions. According to ABI Research
Valued at approximately $430 million in 2012, the mobile device hardware security market will be worth $1.9 billion by 2017. The bulk of the market is attributed to embedded chip security consisting of embedded chip security technology - such as ARM's TrustZone - and other semiconductor companies' security solutions.
Presently, revenues generated from NFC secure elements are a small segment of the mobile device security market. In 2011, only 7% of smartphones had NFC capabilities. Nevertheless, an increase in point of sale transactions, such as purchasing coffee, transportation vouchers, or even cinema tickets, will increase the number of NFC smartphones. It is estimated that more than 60 smartphone models with NFC capability are available now. Within the next two years, NFC security will account for half of mobile device hardware security revenues.
According to an article in the EETimes Europe Edition, IMS Research found that Infineon Technologies (IFNNF.PK) had a 51.5% share in the NFC secure element microcontroller market followed by NXP Semiconductors (NXPI) with 31.8%, Samsung (SSNLF.PK) with 8.6%, and STMicroelectronics (STM) with 5.6%.
Infineon Technologies does not participate in the NFC controller market, but NXP Semiconductors is the market leader in NFC controller chips with other semiconductor companies entering this market. See my previous article Seeking Alpha article, "The Near Field Communication Chip Market Will Be Huge".
A large number of semiconductor manufacturers are moving into the controller chip market. As chip integration proceeds, those companies that can integrate the NFC radio controller with other radios such as Bluetooth will take over that portion of the market.
But the companies with proven smart card secure element technology will have the dominant position in the secure element chip market.
It's too early to tell who will become the dominant chip supplier in the NFC market ultimately, but near term NXP Semiconductors which is in the #1 chip supplier in NFC controllers and the #2 chip supplier in secure elements appears to have the most to gain over the next year as NFC payment systems take hold.
Needless to say it will be important who Apple goes with for their NFC controller and secure element chips when they release iPhone 5 in the fall.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.