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 Called NFC, the technology lets smartphones communicate wirelessly
with other devices such as point-of-sale terminals by holding them
together. While proponents have argued for years that it is ideal
for secure payment systems that could eventually replace credit
cards, none have taken off.
At a gala event on Tuesday, Apple Chief Executive Officer Tim Cook
uncorked Apple's attempt at mobile payments, called Apple Pay, using
NFC chips built into the company's two new iPhones and Apple Watch.
NXP Semiconductors NV's dominates the market for NFC chips with
Broadcom Corp accounting for much of the remainder. Chipmakers
including Qualcomm , MediaTek Inc and Marvell Technology Group Ltd
have their own NFC offerings and will have a chance to stake out
more significant market share if Apple sets off an explosion in
mobile payments.
Samsung, Motorola and other manufacturers already include NFC in
many Android smartphones, and some mobile-payment inroads have been
made in Asia. But with major payment systems like Google's Wallet
failing to catch on, the technology has remained far from standard
in handsets.
Now, trend-setter Apple's adoption of NFC looks likely to provide
the technology the long-needed respect it needs.
"Apple not supporting it always called some people to question its
viability,” said James Anderson, senior vice president of mobile and
emerging payments at MasterCard, which supports Apple Pay.
"All those questions have gone away now. I expect NFC will be the
predominant technology for point-of-sale payments between a smart
device and a merchant terminal.”
Manufacturers included NFC chips in about 300 million smartphones
last year, equivalent to around a third of all smartphones shipped.
The number of NFC-enabled phones this year is expected to keep
growing and reach around 550 million devices, helped by Apple's
devices and an expanding number of Android gadgets, Gartner analyst
Mark Hung estimates.
As well as phones, NFC technology is being built into point-of-sale
devices, video game consoles and medical tools. Shipments of NFC
chips are expected to reach 1.64 billion units in 2018, according to
market research firm IHS iSuppli.
NXP's stock surged 16 percent in the past month as investors bet the
Dutch company's chips would be used by Apple. NXP, which declined to
comment, already supplies sensor coprocessors for the iPhone.
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Selling NFC and related security chips for the iPhone could mean an
extra $230 million in revenue for NXP next year, according to
Pacific Crest analyst John Vinh.
NEED FOR CHIPS TO SECURE DATA
The use of NFC for mobile payments also opens the door to selling
more "secure element" chips used to safeguard vital credentials like
account numbers.
"For there to be a full payment solution there needs to be not only
an NFC radio but also a secure element chip, which obviously
increases the dollar content opportunity for chipmakers like NXP,
but also provides a more robust and secure solutions for the mobile
payments industry," Vinh said.
Chipmakers ST Microelectronics and Infineon Technologies have a
strong presence in secure element components and have plenty of
scalability should the technology take off, said IHS iSuppli analyst
Don Tait.
NXP had a 59 percent share of the NFC chip market last year, but
rivals are ramping up their own offerings. Broadcom has a third of
the market and is integrating NFC features onto "combo" chips
already packed with wifi, Bluetooth and GPS.
Qualcomm, the world's leading chipmaker, has been late to the game
but last year launched its first NFC chip as have smaller rivals.
"Today's news is a welcome indication that NFC technology is
realizing its potential," said David Favreau, vice president of
product management at Qualcomm. "We have seen the growth of NFC in
other geographies and expect it to become a standard feature for
mobile devices."
(Additional reporting by Deepa Seetharaman in San Francisco; Editing
by Cynthia Osterman)
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