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Broadcom Sets Sights on Better NFC Chips

Irvine-based Broadcom Corp. sees a new frontier in near-field communications.

The biggest chipmaker based here—and 10th-largest worldwide—is making a push into NFCs as the market grows for smart phones, tablets and other electronic devices.

A chief lure of NFC chips is their ability to allow consumers to use their mobile phones for purchases with a quick wave at check-out counters.

Broadcom says its line of NFC chips, slated to debut in the middle of next year, will take up 40% less space on a circuit board and consume 90% less power than the competition. It’s counting on those selling points to make strides in a market that’s expected to grow from $240 billion worth of transactions this year to $670 billion by 2015, according to U.K.-based market tracker Juniper Research.

141 Million Users

More than 141 million mobile phone users will engage in some mobile payment in 2011, up 38% from 2010, according to Stamford, Conn.-based market tracker Gartner Inc.

“There’s definitely a broad-based interest across the board,” said Craig Ochikubo, vice president and general manager of Broadcom’s wireless personal area networking business.

The company will have to make some inroads in the relatively new business line. It’s currently considered a smaller player in the segment led by NXP Semiconductors NV in the Netherlands, which counts on NFC chips for a chunk of its $4.4 billion in yearly sales. Santa Ana-based Identive Group Inc., which has annual revenue of $96 million, has been making gains on the NFC front lately.

That’s an obstacle Broadcom has hurdled before in the connectivity market, taking a similar path to become a market leader in chips for Wi-Fi and Bluetooth.

Broadcom has somewhat of a head start on NFCs, going back to 2008 when it introduced a line of the chips in Texas-based Dell Inc.’s PCs. It has since moved into the security sector with chips that read fingerprints, smart cards and tickets, according to Ochikubo. It also has NFC chips embedded in Dell’s Latitude laptops.

The smaller, more energy-efficient chips due out next year have some observers talking up Broadcom’s chances.

“Broadcom obviously has a lot of pieces of intellectual property and technology for handsets, so this fits in nicely there,” said Craig Berger, an analyst at Arlington, Va.-based FBR Capital Markets Corp.

Others give scant notice to Broadcom’s relative lack of experience with NFCs.

“For those bullish on NFC and looking for a leader, it’s more likely to be Broadcom, or one of the other baseband manufacturers,” according to a recent blog post on investor website Seeking Alpha, which pointed to San Diego-based Qualcomm Corp. as the biggest potential competitor on NFCs.

· Headquarters: Irvine

· Business: chipmaker

· Founded: 1991

· Ticker symbol: BRCM (Nasdaq)

· Market value: about $19 billion

· Notable: plans to bring new NFC chip to market in first half of 2012, aims for lead in growing segment

The challenge for Broadcom will be ensuring its new chips meet market expectations, according to Ochikubo.

“That’s been a big focus for us,” he said.

Broadcom got some help last year when it paid $47.5 million for U.K.-based Innovision Research & Technology PLC, which has made headway on lowering the costs of producing NFC chips. Engineers who joined Broadcom in the deal have been paired with counterparts in San Diego and San Jose to work on the new chips, which will be made in Asia.

“It’s become a global team working on it,” Ochikubo said.

Google Factor

Mountain View-based Google Inc. brought some fresh buzz to the technology last month with the launch of Google Wallet, which allows consumers to wave their smartphones at NFC tags to make purchases.

Broadcom hopes to take it mainstream.

Its NFC chips will work on Google’s Android system for phone, tablets and other devices, as well as Redmond, Wash.-based Microsoft Corp.’s applications, according to Ochikubo. They also pair with Broadcom’s Bluetooth and Wi-Fi components.

Retailers are also fueling hopes for big gains as CVS, Wal-Mart and Walgreens are now updating payment systems to accept NFC transactions. There’s a joint venture between New York-based Verizon Communications Inc., AT&T Inc. of Dallas, and Bellevue, Wash.-based T-Mobile USA Inc. to push NFC-enabled mobile devices. And big credit cards companies, including New York-based American Express Co. and Visa Corp. in San Francisco, are moving to adopt the technology to replace magnetic strip payment systems.

“The mobile payment piece feels like a big driver in the market,” Ochikubo said.

Adoption Rate

All of the potential remains tempered by an adoption rate that’s been slower than some expected.

About 6% of mobile phones now have NFC chips, analyst Berger wrote in a recent note to investors. He estimates that figure to increase to 14% in 2012 and jump to 78% by 2016.

Broadcom envisions NFC technology to catch on in other areas as well.

Ochikubo described scenarios where NFC chips in smart phones will allow consumers to access and control Wi-Fi-powered home entertainment systems or Bluetooth headsets simply by waving a smart phone or other device near an NFC sensor. In another application, smart phones could pair with television sets to stream videos, movies and photo albums.

“I think 2012 is the time frame we’re going to see more and more of this,” Ochikubo said.

The effort to break through on NFC chips isn’t the only big deal that expected to happen next year for Broadcom, which saw record sales of $6.8 billion in 2010.

The company also expects to close a $3.7 billion acquisition of Santa Clara-based networking specialist NetLogic Microsystems Inc. in the first half of 2012.

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