Lower NFC Phone Shipments Show NXP and Google Got Carried Away

The slashing by Netherlands-based chip maker NXP Semiconductors of its NFC phone forecast for 2011 demonstrates just how complex the business case for NFC rollouts can be.

NXP had counted on handset makers to order many more chips than they actually did during the second quarter. As a result, NXP cut its forecast for 2011 to 40 million phones or fewer for all of 2011, down from 70 million.

If handset makers do, in fact, ship 40 million phones–and some analysts have their doubts the total will even hit that level–it would represent fewer than 3% of total mobile phones projected to be shipped worldwide this year.

Handset makers, obviously, have yet to make NFC a default feature, waiting for orders from mobile operators. For their part, telcos, some of which have announced rollouts for this year, still are ordering selectively, as they firm up their business cases to pay for the extra cost of NFC phones, NFC-enabled SIMs and the system to deliver and manage the applications. They also know the infrastructure of acceptance points for most applications, such as payment, is sparse in most places.

Then there is the testing of phones, especially to make sure they work at the application level for payment and ticketing. The phones must communicate consistently with the legacy base of contactless point-of-sale terminals and transit terminals. That is no easy task given the expected variety of NFC phones and antenna configurations. At least some of the first commercial NFC phones, such as the Samsung S5230, have required much more testing and tweaking than expected.

Apparently NXP CEO Richard Clemmer & Co. got caught up in the Gingerbread fever a little too much. Clemmer was suggesting NFC phone shipments could approach 100 million units in May, at least one month into the second quarter. He based that on rosy projections from Google for NFC phones supporting the latest version of the search giant’s mobile operating system, Android, dubbed Gingerbread, which supports NFC.

Google, however, has been a little too exuberant itself in its projections for rollout of NFC-based mobile commerce–with Google’s executive chairman, Eric Schmidt, suggesting in late June that one third of U.S. point-of-sale terminals would accept contactless payment within a year. That was only an “educated guess,” he added, though one bordering on the absurd, since only about 2% to 3% of POS terminals stateside support contactless payment, at present, and Schmidt said Google isn’t prepared to subsidize nationwide terminals rollouts. For that projection to come true, it would mean merchants would need to roll out 2 million to 3 million terminals in one year.

Clemmer in May did preface his suggestion that phone shipments could hit 100 million by saying that there would be a lot of “variability” in NFC phone shipments through the year, and that the year-end total could come in as low as 40 million to 45 million. But he added: “We believe there will be a significant ramp of new programs during the latter part of the year as NFC breaks out into the mainstream smartphone market.”

The chip maker’s new projection of 40 million or fewer NFC phones for 2011, however, is even slightly below the low end of the range of NXP’s earlier estimate.

More High-Profile Handsets
If NFC does break into the mainstream smartphone market this year, it will only be on 10 or 12 handsets that major operators rolling out NFC will have in their shops by the end of the year.

As it looks now, this will include at least a few high-end models, including the NFC version of the Galaxy S II, a spokeswoman for Samsung Mobile UK confirmed to NFC Times last week.

In addition, Google is expected to follow its Nexus S 4G NFC phone with a model known as the Nexus Prime, the third edition of Google's Nexus series. Like the Nexus S, the new model is expected to be made by Samsung. The phone would sport an embedded chip to support the Google Wallet. The phone could be out by Christmas.

In addition, Nokia is finally shipping its Symbian-based C7 with the updated Symbian operating system, Anna, which turns on the functionality of the NFC chip, the handset maker has told NFC Times. Nokia still hasn’t made the over-the-air update of Anna available for existing owners of the C7, but that should happen within coming weeks. Nokia first began shipping the C7 with the chip inside last fall. The Finnish handset maker also is expected to introduce its N9 smartphone, based on the MeeGo platform, in the fall. Neither the C7 nor the N9 is likely to support payment on a secure element.

Nokia may ship another couple of Symbian-enabled phone models by the end of 2011. But NFC Times has learned the phone maker’s first Windows phones, expected before the end of the year, will not support NFC. The maiden NFC-enabled Windows Phone from Nokia, likely supporting the next version of Microsoft’s mobile operating system, Windows Phone 8, will come out in 2012.

Meanwhile, Research in Motion said it will release its first NFC-enabled BlackBerry smartphones, the 9900 and probably its close relative, the 9930, by the end of August. There probably will be two more NFC-enabled BlackBerry models by the end of the year, I’m told.

In addition, at least one Android phone from LG Electronics, the Optimus Net, will come out soon. Android models are possible, as well, from HTC, Sony Ericsson and ZTE, though not many of them. But the next iPhone is not expected to support NFC.

These new smartphones add to the few models that are already out, such as the Samsung Wave 578, based on Samsung’s bada smartphone operating system. There is also a handful of NFC-enabled feature phones, such as the Samsung S5260P, follow-up to the Samsung S5230; and an LG phone, the T530. Both are 2G handsets.

Clemmer is quick to point out that the opportunity is “just as significant as we had said,” but is only delayed by one to two quarters. Still, Clemmer also said the chip maker’s earlier projection of about 150 million NFC phones for 2012 would be lower, though would be a substantial increase over 2011.

The phones are in the pipeline, assured Clemmer, telling analysts that handset makers have 60 to 62 handset models under development with NXP chips.

It just remains to be seen how many of these models phone makers are planning to release–and when.

HEADLINE NEWS

Exclusive: What Tokenization Fees from Visa Might Look Like for Issuers

NFC TIMES Exclusive – While Visa has said it is waiving tokenization fees for issuers that join its commercial tokenization hub, VDEP, and use its Visa Token Service, some observers believe the network will charge the fees sooner or later.

Sony Launches Support for FeliCa Technology on HCE Devices, Though Few Handsets Available Yet

NFC TIMES Exclusive – Japan’s Sony Corp. is supporting host card emulation with its proprietary FeliCa contactless technology, which could enable service providers to avoid the need for secure elements in rolling out FeliCa-based applications on NFC phones.

Samsung Semiconductor Faces Challenges in Rolling Out Contactless-Payments Service for Wearables

NFC TIMES Exclusive Insight – Samsung Semiconductor believes there is room for yet another closed-loop payments service, one that enables consumers to pay with contactless wearables devices that carry its dual-interface chips.

Android Pay Launches in Belgium, While State-Owned Belfius Bank Takes Two-Staged Approach to Own HCE Rollout

NFC TIMES Exclusive – Two of the largest banks in Belgium have launched, or are planning to launch, HCE-based mobile payments but chose different approaches: BNP Paribas Fortis decided to first launch with Android Pay, while state-owned Belfius Bank plans to enable the service within its mobile-banking app.

Serbia's KomBank Seeks to Increase Mobile Banking Users with HCE Service

NFC TIMES Exclusive – Komercijalna banka Beograd, known as KomBank, one of Serbia’s largest banks, incorporated a host-card-emulation-based mobile payment service into its mobile banking app to increase awareness and use of the app, Slobodan Lukić, the bank's deputy director of the payment cards division told NFC Times.

Apple Pay Launches in Ireland and Gears Up in Italy; but Only One Major Bank On Board So Far in Each Country

NFC Times Exclusive Insight – Apple has expanded its mobile payments service to another small market, with its launch Tuesday in Ireland, but is preparing to launch in a much larger market, Italy.

Taiwan’s Largest Transit Ticketing Service Plans Bluetooth-Enabled Mobile Ticketing, Though Needs Regulatory Approval

NFC TIMES Exclusive – Taiwan’s EasyCard Corp., the operator of the country’s largest closed-loop transit and retail payments service, is working with a provider of Bluetooth-enabled mobile payments technology to offer customers an NFC-like experience to pay for rides and purchases in stores.

Australian Domestic Debit Network Nears Launch of Token Service Provider to Compete with Visa and Mastercard

NFC TIMES Exclusive – Australia’s largest domestic debit network, eftpos, plans to launch its overdue tokenization service commercially by the second quarter, likely serving at least one of the country’s big four banks for its HCE mobile wallet and one or more of the “Pays” wallets, such as Android Pay and possibly Apple Pay, NFC Times has learned.

Certification Issues and Legal Battle Delay Launch of Kerv Ring; Wearables Maker Says Ring Ready

NFC TIMES Exclusive – After two years addressing design, certification and legal issues, UK-based start-up Kerv Wearables says it’s finally ready to launch its NFC-enabled ring.

Exclusive: Why are Some of the Largest U.S. Merchants Balking at Supporting NFC?

NFC TIMES Exclusive – While the base of contactless point-of-sale terminals in the U.S. has grown substantially over the past two and a half years, some of the country’s largest merchants continue to resist the idea of accepting such NFC wallets as Apple Pay and Android Pay.

Exclusive: Taiwanese Banks to Pay Apple Cut of Transaction Fees on Par with U.S.

NFC TIMES Exclusive – TAIPEI, Taiwan: Apple will collect a cut of transaction fees from Taiwanese banks on credit card transactions that is around the same level as the tech giant takes from U.S. credit card issuers, when Apple Pay launches in Taiwan, expected later this month, NFC Times has learned.

Analysis: Why QR Codes are Challenging NFC to Enable Mobile Payments

NFC TIMES Exclusive – Despite the resurgence in demand for NFC technology with the launch of Apple Pay in 2014, followed by other NFC-enabled “Pays” wallets and the separate rollout of HCE technology by Google, use of QR codes for mobile payments continues to grow in popularity globally.