The way we've succeeded is by choosing what horses to ride really carefully, technically. We try to look for these technical vectors that have a future, and that are headed up. And you know, technology, different pieces of technology kind of go in cycles. They have their springs and summers and autumns, and then they go to the graveyard of technology.
And so we try to pick things that are in their springs. And if you choose wisely you can save yourself an enormous amount of work versus trying to do everything.
...
Sometimes you just have to pick the things that look like they're going to be the right horses to ride going forward.
- Steve Jobs, June 2010
This is how Apple (AAPL 0.87%) decides which technologies it supports. This quote was during Apple's public battle with Adobe Flash, after the Mac maker famously chose not to support Flash on iOS devices, but it offers a glimpse into Apple's philosophy. Over the years, Apple has adopted or ditched various technologies when it feels the time is right.
There are 2 major technologies that Apple has, to date, chosen not to adopt. These 2 technologies aren't particularly new, but Apple is expected to finally adopt both this year. They are near-field communications and organic LEDs. Here's who benefits if Apple indeed adopts both.
NFC beneficiary: NXP Semiconductor
Near-field communication (NFC) has been around for at least a decade in various forms. Only recently has it been considered as a viable method to facilitate mobile payments.
However, NFC adoption has been modest at best given the high costs that merchants and retailers must face to install the infrastructure. While NFC chips are common in Android phones, consumers also haven't begun using the protocol regularly. The technology faces a classic chicken-and-egg dilemma. Who will come first: merchants or consumers?
It appears that Apple is finally ready to adopt NFC this year in the iPhone 6 as well as the iWatch as part of its broader payments strategy. The rumors this year are more credible than ever, and NXP Semiconductor (NXPI +1.19%) is likely supplying the NFC chips. A leaked iPhone 6 logic board confirms as much.
NXP is the world's largest supplier of NFC chips, which is included in its Identification operating segment. Given Apple's volume requirements, NXP will be a key beneficiary if Apple ends up including NFC hardware in its latest batch of devices.
However, investors should note that the Identification segment was just 25% of total revenue last quarter. This figure could rise as Apple boosts the Identification business, but NXP has a diverse business and operates in many markets.
It's also worth noting that NXP supplies Apple's M7 motion co-processor, which is dedicated to collecting and processing data from the accelerometer, gyroscope, and compass. It's unclear if Apple will upgrade this co-branded customized chip to an M8, but at very least Apple would likely continue using similar chips from NXP since they facilitate power savings. These microcontrollers are included in NXP's Portable and Computing segment, which comprised 11% of revenue last quarter.
The midpoint of guidance calls for total product revenue to increase by 11% sequentially in the third quarter. Between an NFC chip and motion co-processor, NXP looks ready to capitalize on the iPhone 6 and iWatch.
OLED beneficiary: Universal Display
Investors have been speculating for years that Apple would one day adopt OLED displays. OLED displays have many of the characteristics that Apple values: they use very little power, enable thin and flexible designs, and are highly recyclable since they're made from organic materials, among others.
The iWatch is expected to feature a curved OLED display with a sapphire cover glass and may also utilize wireless charging. Given the curvature of a person's wrist, a smartwatch is an ideal application for an OLED display. The recent crop of curved smartphones that have been released, including Samsung's new Galaxy Note Edge, are more of a novelty with little in the way of practical use.
But Tim Cook has directly bashed OLED displays for some of their drawbacks. Namely, that the color saturation is "awful," as well as color accuracy, and that they're not as bright as LCD displays like Apple's Retina displays. Presumably, Apple has addressed some of Cook's performance concerns if it's moving forward with OLED displays.
Universal Display (OLED +1.28%) is the primary beneficiary if Apple adopts OLED. This day has been a long time coming, and if Apple indeed uses OLED displays, both Universal Display's licensing and material sales businesses will benefit. Looking longer-term, it could even be possible for Apple to adopt OLED displays in its other devices.
Of the two, material sales will see the most incremental boost as the company sells the organic materials that will end up in the displays to OLED display manufacturers like Samsung and LG Display. The material sales segment is the real growth business here, driving over 80% of total revenue growth in the first half of the year.
The ultimate validation
Considering how picky Apple is with choosing technologies, combined with the fact that it sells tens of millions of devices per quarter, getting the Mac maker's vote of confidence is the ultimate validation and can catalyze long-term trends for any technology.
Apple's potential adoption of NFC and OLED displays would be a massive boon for both technologies, creating long-term opportunities for the companies that facilitate them.
