This month could be the start of the next revolution in personal computing. With the debut of Samsung's (NASDAQOTH:SSNLF) Galaxy Gear and the release of Sony's (NYSE:SNE) SmartWatch 2, wearable computing could finally be about to go mainstream.
While these devices could boost the bottom lines of the companies that manufacture them, chip suppliers could be a better play. In particular, NXP Semiconductors (NASDAQ:NXPI) could be poised to benefit.
The coming wave of smart watches
Samsung will debut its smartwatch, the Galaxy Gear, later this month. Unlike its rival Apple, Samsung has never been particularly tight-lipped about its upcoming devices. Based on various reports around the web, including one from Gigaom, Samsung's Galaxy Gear will include NFC.
Samsung is likely hoping that the Galaxy Gear will offset sluggish demand for its high-end smartphones. Although its recent flagship, the Galaxy S4, shipped 20 million units within its first three months on the market (making it the fastest selling phone in Samsung's history) it was not enough to satisfy analyst expectations. Samsung shares fell in July after the company posted disappointing earnings. Although Samsung is a complex company, its high-end Galaxy phones have accounted for much of its recent growth -- profits at its mobile division jumped 52% last quarter from the prior year.
Sony, too, is looking to mobile to help turn around the company. Sony's new lineup of Xperia tablets and smartphones have been well reviewed, and although Sony remains far behind Samsung and Apple in terms of total sales, its mobile division posted a profit of $60 million last quarter -- up from a loss of $28 million in the prior year.
Sony's smartwatch, its SmartWatch 2, goes on sale this month. The device is actually the second attempt the company has made at cracking the smartwatch market, although its first model was poorly reviewed and mostly ignored. The SmartWatch 2 uses NFC, as do most of Sony's other mobile devices. As Sony makes a variety of electronics, it isn't particularly surprising that Sony is extensively using the technology.
Using NFC to connect devices
NFC technology allows mobile devices to "talk" to each other. Samsung has made its use of NFC a key selling point for its phones -- the "tap to share" feature Samsung features in its advertising relies on NFC.
Sony's use of NFC extends beyond its phones. Besides the SmartWatch 2, Sony has put NFC technology into its cameras, its TVs, and its speakers. Owners of both Xperia phones and high-end Bravia TVs can beam their phone's screen to the TV by tapping their phone against the remote. The same technology allows music to be sent to Sony stereo systems.
Using NFC in smartwatches is an obvious decision. As both Sony and Samsung's watches must be paired with smartphones to work, NFC chips allow for easy, hassle-free pairing. As other companies, including Apple, Google and Microsoft are rumored to be prepping their own watches, expect NFC to make its way into those devices as well.
As NFC's popularity grows, NXP benefits
NXP won't benefit directly from Samsung's Galaxy Gear, as it isn't the only company that makes NFC chips. Earlier this year, Samsung abandoned NXP's chips in favor of Broadcom's for the NFC in its Galaxy S4. The same is probably also true for its smart watch.
But Sony is an NXP customer, and NXP remains the top supplier of NFC chips. Moreover, as a developer of the technology, NXP has a portfolio of NFC-related patents.
Overall, the trend toward wearable computing is great for NFC technology, and therefore NXP. As companies such as Sony and Samsung look to new, connected mobile devices to grow their earnings, expect the demand for NFC technology to increase.
Sam Mattera has no position in any stocks mentioned. The Motley Fool recommends Apple, Google, and NXP Semiconductors . The Motley Fool owns shares of Apple, Google, and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.