One of the most significant challenges to widespread adoption of Near Field Communication-enabled mobile payments has been determining how the card brands, issuers, mobile operators and handset manufacturers will divvy up transaction revenues.
NXP Semiconductor, which manufactures contactless chips, says the issue remains a contentious one and has scaled back its prediction for NFC rollouts as a result.
No more than 40 million NFC-enabled phones will be produced this year, Rick Clemmer the Netherlands-based company’s CEO, said July 28 during a conference call with analysts to discuss the company’s second-quarter earnings. NXP previously predicted that 70 million to 100 million NFC-equipped devices would ship this year.
“We believe this shortfall is due to a combination of formulation and agreement on the specific business models to support the ecosystem as well as business challenges some handset [manufacturers] are experiencing in the marketplace,” Clemmer said during the call.
NXP’s lower expectations should come as no surprise to those keeping a watchful eye on the market, Terry Xie, director of the international advisory service for Mercator Advisory Group, tells PaymentsSource.
“Despite excitement [around NFC] and announced plans, the business case is just not clear enough,” Xie says. “The struggling global economy certainly doesn’t help.”
In December, Xie wrote a report that predicted 116 million NFC-enabled smartphones would shipment in 2011 if Apple Inc.’s iPhone 5 contained the technology. The new iPhone is expected to debut this fall, but no one is sure whether it will contain an NFC chip (
“The delay of iPhone 5 and the apparently missing NFC feature also make the outlook less promising,” Xie says.
The global NFC handset market would not be as robust without an NFC-enabled iPhone, Xie wrote in the report. Shipments in 2011 would drop 44%, to 66 million, while 2012 shipments would drop to 218 million from 260 million as an NFC-enabled iPhone 6 would ship mid year, he predicted.
“We currently see the ramp is likely to be towards the lower end or perhaps even slightly below our initial range for 2011 as the mobile operators implement their deployment strategies,” Clemmer said about NXP’s predictions.
NXP has its chips in some “60 unique NFC-based handset designs across a spectrum of major handset [manufacturers],” Clemmer said.
Long term, NXP still believes the market for NFC smartphones is strong based on discussions with different players within the ecosystem, Clemmer said. “It’s not if the ramp [up] of mobile transactions occurs, but only a question of when it will take place,” he added.
NXP reported net income of $84 million for the period ended July 3, down 76.8% from $362 million during the same period in 2010. Total revenue was 1.12 billion, up 0.9% from 1.11 billion. Product revenue, which includes the company’s chip division, was $1.02 billion, up 10.2% from $926 billion.
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