NXP: The Intel of the Next Decade
by Marc Lichtenfeld, Investment U's Senior Analyst
Thursday, June 16, 2011: Issue #1536
Every so often, when a new technology appears, it becomes blatantly obvious that it will change the way we live, even before it becomes widely adopted.
Anyone who was around during the early days of the automobile had to realize the freedom to move that it would bestow on people.
People paying attention to the beginning of the internet had to know that it would change the way people communicate, conduct research and how congressmen get into trouble for lewd behavior.
And today, a new technology is on the verge of breaking into the mainstream that will change the retail and restaurant industries forever... and bring happy returns to early investors...
Near Field Communications Technology
I'm talking about Near Field Communications (NFC). On Tuesday, my colleague David Fessler explained how NFC smartphone technology could replace your credit cards in the near future. And now I'd like to tell you why and how you can follow the trend on this breakthrough technology...
NFC technology allows your smartphone to act as your wallet. You can store all of your credit card information, checking accounts, frequency award cards and even coupons on your phone.
Here's an example of how it will work when it goes mainstream:
- You walk into a CVS (NYSE: CVS) to pick up your prescription. While you're there you realize you need some toothpaste, a birthday card, a bottle of ibuprofen and since you're thirsty, you'll grab a Diet Coke.You bring these items up to the counter. Instead of handing over your credit card or some cash, you tap your phone against the reader and not only does it charge your credit card, it knows you have a $1 off coupon for the toothpaste and a $0.50 off coupon for the ibuprofen. Then it credits your CVS rewards card instantly. And all you had to do was tap your phone.
- Similarly, you grab lunch at your favorite café in your town. When your $14 bill arrives, you tap your phone and your $10 Groupon is instantly credited to your bill. The remaining $4 is paid from your checking account.
Most importantly, all of this is done securely.
Google (Nasdaq: GOOG) is the pioneer of this product with its Google Wallet, which just launched on Android phones. Other companies are likely to join the fold soon. When it's rolled out, you will be able to use it at places such as Best Buy (NYSE: BBY), CVS, Subway, 7 Eleven, Foot Locker (NYSE: FL) and Whole Foods (Nasdaq: WFM), among others.
As my colleague, Justin Fritz, wrote in Wall St. Daily, "Mobile payments in the United States alone could reach $56.7 billion by 2015."
There's no confirmation yet on when Apple (Nasdaq: AAPL) will offer NFC technology through its mobile platform. But there has been speculation it could come as soon as the iPhone 5.
NXP Semiconductor: Google's NFC Chip Producer
A company that's poised to take advantage of this new trend is NXP Semiconductor (Nasdaq: NXPI). NXP is a Dutch company that makes the chip that essentially runs Google Wallet and ensures that transactions are secure.
The Google Wallet deal will double the company's NFC chip sales. And NXP's CEO Rick Clemmer recently said that every time he talks to Google, they want to double their orders.
That's a lot of doubling. Which brings me to the stock.
Shares of NXP Semiconductor sold off in the recent market slump - and also in conjunction with the announcement of the Google Wallet - an unsurprising sell-the-news reaction.
The stock is down 31 percent from its high of $35.32 in late April.
Where does the stock stop falling? Hard to say. Right now, the chart looks terrible. A bearish double-top pattern may be in effect. That would be confirmed by a break of $24 to the downside.
But wherever it stabilizes will likely be a good spot to pick up some shares, as the company will be at the forefront of a revolution in the way people spend money.
It's expected that 472 million smartphones will ship in 2011, an increase of 55 percent. Already, three quarters of the world's population own a cellphone. Half of the people in Africa access the internet via their mobile phone.
While the smart wallet will take a little bit of time to ramp up, you can see the enormous global opportunity that exists. There will certainly be innovations to the current technology and new players will emerge. But for right now, look for buying opportunities in NXP Semiconductor as it could very well become the Intel (Nasdaq: INTC) of the next decade.