What’s Driving NXP’s Growth in Secure Connected Devices?
NXP’s exposure in the Secure Connected Devices market
In the previous part of the series, we saw that NXP Semiconductors’ (NXPI) key market, automotive, has been witnessing slow growth in the short term but that it holds strong growth potential in the long term. Meanwhile, one market that’s witnessing strong growth potential in both the short and long term is the SCD (secure connected devices) market, which accounted for 24% of NXP’s 3Q16 revenue.
The SCD business line delivers processors, power management solutions, audio codecs, touch sensors, and accelerometers to support operating systems such as mobile transaction applications and contactless POS (point of sale) systems.
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NXP’s revenue from SCD
The company’s SCD revenue has been growing steadily over the past five quarters. In 3Q16, SCD revenue rose 15% sequentially to $592 million, driven by strong seasonal demand from its largest customer, Apple (AAPL), and the increasing adoption of new models from Korean and Chinese OEMs (original equipment manufacturer).
Within the SCD segment, NXP witnessed strong demand for its 32-bit ARM-based MCUs (microcontrollers) and i.MX apps processors, which was partially offset by the roll-off of its legacy MCUs.
NXP is deploying mobile mass transit solutions across major cities in China (MCHI). The company has successfully deployed these solutions in six of ten major cities in China. Eight OEMs have already launched mobile payment solutions for transit and have witnessed strong activation rates so far.
However, NXP expects its SCD revenue to fall 2%–3% sequentially in 4Q16.
Mobile payment market forecast
The demand for SCD is growing as new government norms promote secure identity documents and cashless transactions. An ABI Research report stated that mobile payment functionality is now available in over 350 smartphone models across the world, the majority of which are in China. The research firm expects over 80% of all POS terminals across the world to allow contactless payment by 2017.
In the long term, Markets and Markets forecasts the contactless payment market to grow at a CAGR (compound annual growth rate) of 21.2% to reach $17.6 billion by 2021, largely driven by smart cards. However, mobile payments are gaining traction in developing countries.
Novonous expects the global mobile payments market to grow at a CAGR of 36.3% by 2020, with the largest growth coming from Asia-Pacific, followed by North America and Europe, respectively. NXP is set to leverage this changing trend of payment with its secure mobile payment solutions.
The company not only provides secure device solutions, but also secure infrastructure solutions. We’ll look into this segment in the next part of the series.