NXP: In the Chips

The former Philips Semiconductors goes for broke in wireless and multimedia chips that could change the way we live, work -- and shop

by Jennifer L. Schenker

In Vienna, commuters hold their mobile phones up to "touch points" on train platforms and receive their tickets via text messages. In the London Underground, some subway riders can glide their handsets over "smart posters" that automatically connect them to a Web site with instructions on how best to reach their destinations. And in New York, mobile phones are replacing plastic credit cards, allowing consumers participating in a trial to pay for everything from fast food to furniture with a wave of their handsets.

The technology behind these whizzy scenarios is a new kind of short-range radio called Near Field Communication, or NFC, that promises to revolutionize everything from payment systems to home networking. In the next few years, NFC chips will find their way into cell phones, PCs, consumer electronics, and even industrial equipment, helping unleash another—albeit more intimate—wireless revolution.

NFC Leads New Product Push

No company is pushing NFC more than Eindhoven, Netherlands-based NXP Semiconductors, the former chip unit of Philips Electronics (PHG), which celebrated its first anniversary as an independent company on Aug. 27. Philips co-invented NFC with longtime collaborator Sony (SNE), and now NXP is leading the charge to popularize the technology. "I see mass-market applications from next year onward," says NXP Chief Executive Frans van Houten. "There is huge potential."

The technology is already catching on. Hundreds of trials have taken place across the world in recent years, and on Sept. 4, wireless operator Mobilkom Austria (TELA.F) announced the world's largest commercial rollout to date of NFC, with plans to offer payment services for mass transit, parking meters, and vending machines. In the U.S., Citigroup (C) is testing a service that replaces credit cards with NFC-equipped mobile phones. "The customer response to this has been overwhelmingly positive," says M.V. Rajamannar, executive vice-president for Citi Cards at Citigroup in New York.

For all of NFC's promise, it's only one of NXP's wide assortment of cutting-edge technologies. Ranked the No. 8 chipmaker in the world by researcher iSuppli, NXP was acquired a year ago from Philips for a heady €8.3 billion ($10.6 billion) by top-tier private equity firms Kohlberg Kravis Roberts, Silver Lake Partners, and AlpInvest Partners (see BusinessWeek.com, 8/2/06, "What Are KKR's Plans for Philips Semi?"). The company, with 2006 revenues of €5 billion, makes chips for a huge array of products, including PCs,TVs, and automobiles, competing with rivals such as ST Microelectronics (STM), National Semiconductor (NSM), and Texas Instruments (TXN).