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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.

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