by Justin Dove, Investment U Research
Tuesday, October 4, 2011
Two recent events have likely ushered the dawn of NFC smartphone technology in the mainstream marketplace.
- Isis announced last week that a handful of major handset manufacturers are already showing support for its NFC platform. (Isis is a joint mobile payment venture between AT&T (NYSE: T), Verizon (NYSE: VZ) and T-Mobile.)
While Isis most likely won’t come online until 2012, it should offer some competition to Google, which is likely to use its recent acquisition of Motorola Mobility to help further push its NFC agenda.
While these companies duke it out over who controls the NFC payment market, the semiconductor companies producing the chips used in the devices will most likely be the ultimate winners.
NXP is possibly still a decent investment at this stage, especially since its stock is battered and is currently at less than half its 52-week high of $35.32. But looking at the future of NFC, NXP has an inherent weakness…
It doesn’t manufacture baseband processors for smartphones. Although current NFC-capable models and those in the near future use NFC controllers, it probably won’t last very long.
These controllers cost roughly $5 per phone. If NFC is widely adopted, it’ll be much cheaper – according to some, about $0.50 per phone – to combine the NFC capability into the baseband processor, much like GPS, Bluetooth and WiFi are now.
In early June of 2010, Innovision announced that it created a way to greatly lower the cost of implementing NFC. Essentially, its Gem NFC IP allows baseband processor manufacturers to combine the NFC capabilities into their “combo chips” with the other features like GPS, Bluetooth and WiFi.
Former Innovision CEO David Wollen told the NFC Times that the company believed NFC models starting in 2012 or 2013 would no longer put standalone NFC chips inside devices, but instead would opt for “combo chips” supporting the various wireless technologies. It would eventually reduce the cost of embedding an NFC modem in a handset to well below U.S.$0.50, he said.
Just over a week after the announcement, baseband manufacturer Broadcom (Nasdaq: BRCM) purchased Innovision for 47.5 million.
Broadcom will certainly have competition from other baseband manufacturers, such as:
- STMicroelectronics (NYSE: STM)
- LM Ericsson (Nasdaq: ERIC)
- Qualcomm (Nasdaq: QCOM)
- Marvell Technology Group (Nasdaq: MRVL)
But the acquisition of Innovision is already reaping benefits as Broadcom officially entered the NFC chip market and already has a head start on the competition.
Broadcom’s New Line of NFC Chips
On Monday, Broadcom announced the release of the BCM2079x family of NFC chips. Broadcom claims that the chipset “slashes power consumption by more than 90 percent, uses 40 percent fewer components and has a 40 percent smaller board area, making it the smallest and most power efficient NFC solution on the market.”
“Broadcom is committed to making NFC as ubiquitous as Bluetooth and WiFi are today,” Broadcom Vice President and General Manager Craig Ochikubo said.
While this chip doesn’t quite reach the vision of the complete “combo chip,” it’s a large first step in that direction.
The Bottom Line
NXP may still have a solid future due to the possible royalties it’ll receive from patents and licenses. It may even look to acquire or launch a baseband business to keep up with companies such as Broadcom and Qualcomm. But for those bullish on NFC and looking for a leader, it’s more likely to be Broadcom, or one of the other baseband manufacturers.
In reaction to the Innovision acquisition last June, Ochikubo told the NFCTimes, “We really feel its perfect timing right now, given increased interest from handset makers and carriers and the maturity of the NFC market.”
And with the recent confluence of Google Wallet and the Isis news with Broadcom’s latest release, it looks like Broadcom may truly be right on time.
Justin DoveNFC Technology: What Investors Need to Know,