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Identive’s India Deal, Transponder Orders Point to Demand for NFCs

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Santa Ana-based Identive Group Inc. hopes a recent increase in orders and a key deal in India point to greater adoption of the company’s near-field communications technology and help it back to profitability.

Near-field communications, commonly referred to as NFC, allows communication over very short distances, sometimes just a few centimeters. A user can touch a smart phone to an NFC tag and immediately process a payment, connect to a website, dial a number or launch an application.

Identive earlier this month announced it will supply Yeldi Softcom Pvt. Ltd., a unit of Yeldi Group in India, with NFC tags to support the launch of its cashless payment system in the world’s second most populous country.

Identive is working with Netherlands-based NXP Semiconductors NV on the Yeldi deal, which came on the heels of new customer orders for more than 20 million radio frequency identification transponder products, including 15 million NFC transponders. The transponders, which emit and capture identification signals, will be delivered over the next six months to customers in the U.S., Europe and Asia.

The NFC segment is a growing business line for Identive, but still accounted for less than 10% of its $102 million in sales last year. Its primary business lines are making scanners, readers, cards and other security devices for buildings and computers.

• Headquarters: Santa Ana

• Business: Cards and other security devices for buildings, governments; near-field communications tags, transponders

• Founded: 1990

• Ticker symbol: INVE (Nasdaq)

• 2011 revenue: $102.7 million

• Recent earnings: ($41.9 million) for June quarter

• Market value: About $69 million

• Notable: Struck deal to supply NFC tags for Yeldi Softcom’s cashless payment system in India

Financial details of the recent deals for NFC tags and transponder were not disclosed, but such components can cost 50 cents on the low end to upward of $2, depending on complexity and stored data.

“With this new order it’s a positive indication that there is still demand for NFC products,” said Bhakti Pavani, an analyst with Irvine-based investment bank C.K. Cooper & Co.,

C.K. Cooper downgraded its rating on Identive shares from “buy” to “hold” last week.

Emerging Countries

Emerging countries, and particularly India, represent key expansion markets for Identive as the country rolls out national initiatives pushing the technology, said Dave Holmes, the company’s vice president of mobility and NFC solutions.

“We’re helping to bridge the gap of people who don’t have smart phones and leverage contactless payment transactions,” Holmes said.

India is considered a leading NFC adopter, said Holmes, who has been in the segment since its inception in 2003. Japan is at the top of the list among global markets, followed by Europe, the U.S. and Canada, he said.

Yeldi Softcom plans to target 300,000 mobile phones and deploy millions of NFC tags as it rolls out the system in the coming months. The program will allow NFC payment tags to be used to load cash onto phones from personal bank or special escrow accounts, pay for items or utility bills, recharge phones, book movie and travel tickets, and earn reward points.

Stamford, Conn.-based market tracker Gartner Inc. forecasts 200 million phones will be equipped with NFC technology by the end of this year, up from 30 million to 35 million in 2011.

Adoption

Identive hopes to boost adoption beyond mobile payments by supplying businesses, governments and buildings with readers and tags that allow communication at museums, resorts, universities, stadiums and other large venues with heavy traffic.

“The biggest category will be advertising, but for now it’s a lot informational services and education,” Holmes said. “We clearly think it’s a serious growth driver going forward.”

Wall Street has been less receptive to that message.

Identive shares fell below the $1 mark for a prolonged stretch earlier this year, prompting a delisting notice from the Securities and Exchange Commission for failing to comply with minimum stock-price requirements.

Identive took a $45.4 million charge in the June quarter on the markdown of some assets. It projected a loss of $1.7 million to $1.9 million for the third quarter, in line with consensus estimates.

The company’s shares received a jolt last week, surging nearly 23% after it announced its iAuthenticate reader is available for Apple Inc.’s iPad, iPhone and iMac users to gain secure entry into networks, websites and payment systems using IDs or credit cards equipped with smart chips. The company is targeting the readers for the U.S. government and corporate markets.

They fell back a bit a few days later on the downgrade from analysts.

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