by Justin Dove, Investment U Research
Friday, August 5, 2011
Marc Lichtenfeld discussed Google Wallet and its implications for NXP Semiconductor (Nasdaq: NXPI) back in June. He noted the stock chart looked bad and that a break below $24 would signal a bearish double-top pattern.
Well, it fell past $24 last Friday and has dropped all the way to the $18s. This fall was spurred by an announcement that NXP would trim its guidance for the rest of 2011. Demand for the Near-Field Communication (NFC) technology has been slower than the company expected.
While NFC technology is definitely going to be the future of payment… The big question is “When?”
Delays in NFC Technology Adoption Abound
There are some new developments that may further slow NFC technology from becoming a mainstream form of payment:
- News surfaced Monday that American Express (NYSE: AXP) has struck a deal with Verizon (NYSE: VZ) to offer Serve on its phones. Serve, which is already available through Sprint (NYSE: S), is a method of payment that bypasses the need for NFC chips. Instead it uses a mobile number to authenticate a purchase or transfer to other users. It also allows a user to transfer funds to a debit card which can be used for payment.
- Verizon and American Express have also partnered with Payfone. Another form of electronic payment option, Payfone uses mobile numbers like Serve. Instead of using credit card or bank accounts though, Payfone charges the user’s mobile phone bill.
- Google Wallet has been billed for release this summer, but nothing has happened yet. There is no word on when exactly Google (Nasdaq: GOOG) will unleash its beast.
These types of technologies seem to be a step ladder for the consumer. Instead of taking a big leap into the technology, it seems companies and consumers will be taking baby steps. It will also allow for users who don’t want to go out and buy a new phone right away to participate in some of the fun.
The 800-pound Apple Revisited
International Business Times claimed on Monday that NFC on the iPhone 5 “is confirmed.” However, they failed to mention any source or factual evidence. Then on Tuesday the same publication reported that it was unlikely that iPhone 5 would include an NFC chip!
Regardless, NXP probably won’t directly benefit from Apple’s inclusion of NFC technology. Rumors have Apple going with Qualcomm (Nasdaq: QCOM) for NFC chips and PayPal for payment service. Apple’s inclusion of NFC would however spur widespread acceptance and infrastructure in the marketplace.
iPhone 5 is slated for release around October, and there’s no telling if it will even include NFC technology. NXP also predicts that it will double the number of units sold for 2012.
There was an announcement in April that Samsung and Visa were helping London prepare for widespread NFC payment use for the 2012 Summer Olympics. According to the report, London already had 60,000 locations geared up for contact-less payment. However, that’s almost a full year away.
The Bottom Line for NXP and NFC Technology
NFC isn’t the only technology NXP is involved in. NXP Semiconductor has been around for 50 years and was spun off from Philips (NYSE: PHG) in 2010. It puts semiconductors in everything from new types of automobile keys to lighting systems and cell phones. But the NFC chips are why its stock shot up to more than double its IPO price of $14. They are also the reason its P/E is still at 60 after falling back to the $18s.
Keep an eye on iPhone 5. If that’s confirmed to use NFC, then we can expect the technology to take off as early as the beginning of 2012. If not there doesn’t seem to be any hurry.
Google will likely want to get a jump on Apple. But only a couple Android phones have the NFC capability for now and it will take time to hammer out kinks in Google Wallet. Without more demand from consumers, stores aren’t likely to jump into the costs of buying the infrastructure either.
NXP Semiconductors still hasn’t leveled out to a bottom. Without NFC technology taking off, it’s certainly not worth 60 times its earnings. Wait until you see some signs of life from NFC before diving into NXP.