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Did Apple Just Kill NFC?

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Yet again, Apple (NASDAQ: AAPL  ) has elected to forgo near field communication, or NFC. Neither the iPhone 5S or iPhone 5C contain NFC chips, and based on recent additions to iOS, Apple may choose to avoid using NFC technology for the foreseeable future.

Apple's decision to ignore NFC certainly doesn't help chipmakers that rely on the technology, but that said, it doesn't necessarily signal NFC's imminent death.

AirDrop and iBeacon
Using NFC, smartphones and tablets are able to easily communicate with the world around them. Samsung has been a big proponent of the technology, actually focusing much of its advertising strategy around NFC.

Samsung's "S Beam" allows owners of Galaxy handsets to share pictures, videos and playlists. It uses NFC.

Until now, that's one feature that the iPhone has lacked. But that will change later this month with the rollout of iOS 7. The updated version of Apple's mobile operating system includes "AirDrop" -- a feature that will, like Samsung's S Beam, give iPhone owners the ability to easily share files. But rather than use NFC, AirDrop relies on WiFi and Bluetooth. 

In fact, when Apple announced AirDrop, it actually took a subtle swipe at NFC, with Apple's mobile development chief Craig Federighi noting that "there's no need to wander around the room, bumping your phone."

Then there's iBeacon. Using Bluetooth, Apple has devised an alternative way to handle mobile payments. As Gigaom notes, stores can set up beacons that can communicate with the phones of customers at a distance of up to 50 meters. eBay's PayPal has devised a similar service (the aptly titled Beacon) that also has the ability to handle mobile payments with Bluetooth technology.

But NFC remains popular among Android OEMs
Yet, Apple isn't the only handset maker -- far from it. Google's Android remains dominant, taking nearly 80% of the market in the second quarter, according to research firm IDC, and Android OEMs remain big proponents of NFC.

Besides Samsung, Sony (NYSE: SNE  ) is a major fan of the technology. The Japanese electronics giant has begun to stick NFC chips in nearly all of its electronics -- not just its smartphones and tablets, but also its TVs and stereos.

In fact, NFC appears to be fundamental to Sony's larger electronics strategy. Apple has long been famous for its software-based ecosystem, but Sony is using NFC to establish a hardware one. If an individual happens to own a Sony Xperia Z smartphone, they might be more inclined to purchase a Sony Bravia TV or Sony stereo system. At first glance, those electronics appear to be unrelated -- but using NFC, Sony has managed to connect them.

Tapping an Xperia Z smartphone on the remote control of a high-end Sony TV beams the phone's screen to the TV's. In much the same way, some Sony stereo systems allow for owners to send music from their phones to their speakers. Admittedly, these features can be replicated with other phones, stereos, and TVs, but it often requires expensive adapters, and the process certainly isn't as simple.

Sony's new smartwatch, the SmartWatch 2, also uses NFC, allowing an owner to easily pair the watch with their handset. If Sony moves further into wearable technology, it will likely continue to rely on NFC.

NXP Semiconductors continues to be the primary NFC stock
There are several companies that make NFC chips, including Broadcom, but NXP Semiconductors (NASDAQ: NXPI  ) continues to be the premiere NFC stock play. In addition to the actual NFC chips the company produces, it also holds a portfolio of patents centered around NFC.

Despite Apple's decision to exclude NFC from the next version of the iPhone, NXP's stock was largely unchanged following Apple's announcement. As long as Android OEMs like Sony and Samsung continue to stick by NFC, companies like NXP might not need Apple to push the technology.

But investors in the chip company should keep a close eye on Apple's new technology. As long as Apple remains a major player in the mobile space, its continued shunning of NFC could pose a threat to the technology's long-term adoption.

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9/26/2016 1:06 PM
AAPL $112.90 Up +0.19 +0.17%
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