Say Goodbye to your Wallet
Moustafa is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
When looking for potential growth companies to invest in we often look at the potential of their technology to change the way we interact with something, create a whole new market or radically improve upon what’s already out there. If I had a crystal ball and could predict that Apple would, after releasing the iPod, go onto revolutionize smart phones and create a whole new market for tablets it would have been a very easy sell. That is where the risk and potential profits lay, in the unknown.
If we knew a technology would be successful and the company that utilizes it successful at monetizing the technology, picking winning companies would be like shooting blind fish in a small bucket. The list is long of companies that the market shied away from, was unsure about, or just plain couldn’t’ believe would reach the levels they eventually did. Anyone whom remembers the IPO for Google (NASDAQ: GOOG) can remember how many people felt that the valuation was sky high and that it would never be able to justify earning revenues solely from online advertising. Fast forward less than a decade and its one of the most cash rich companies on the planet and the stock is up more than 6 times the IPO price. All this to say that truly innovative technology can rarely be valued before it is fully accepted by the general market. Looking for the next major technological innovation can be similar to looking for buried treasure, in that there are many spots to look but often only a couple places that will yield riches.
Moving forward, where is the next major technological advance that has been in the works for many years? We no longer need CD players, books are becoming digital, newspapers are heading the way of the dinosaur and desktop computers are becoming less and less utilized. What could be next? I think it’s going to be the wallet. You can already use your iPhone as a point of sale machine, you can store contacts and business cards in your phone and the only thing really left would be to be able to use your smartphone like a credit or debit card. A few years ago saying that your phone would also become your wallet would seem nonsense, but the technology is here to make it a reality. Near field communication or NFC for short has continued to develop and is now already in use by several major phone manufacturers. The technology is an improvement to the existing RFID system which transmits information over a much larger distance. NFC can do the same thing but keeping that information to within a few inches without broadcasting your sensitive information further than that. This will allow you to turn your smartphone into a potential mobile payment solution where instead of swiping your plastic cards you swipe your phone.
The beauty of this is that there is already a major player who helped create the technology and is selling its NFC chips to major players like Nokia and Samsung presently. NXP Semiconductors (NASDAQ: NXPI) which was spun off from Phillips by a private equity firm, not only helped create NFC but had its first year of positive net income in 2011. The company does have a high level of debt compared to cash and hasn’t been profitable for very long. The major risk is whether more major manufacturers will start utilizing NXP’s chips in their devices. That risk is where the huge potential profits lay. All NXP needs to send their shares skyrocketing is for Apple to include their chips in the next generation of smart phones and for people to start actually utilizing the NFC chips for mobile payments. I see this as more of a matter of time than anything as NXP has a huge portfolio of patents protecting its chip set and the future tends to arrive quicker then we usually expect.
mooseelz owns shares of Google. The Motley Fool owns shares of Google. Motley Fool newsletter services recommend Google and NXP Semiconductors . 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. If you have questions about this post or the Fool’s blog network, click here for information.
