As a follow up to Mobile Payment – Near Field Communications analysis, this article updates the latest events for the two companies mentioned; Verifone (PAY) and NXP Semiconducdor (NXPI).

VeriFone (PAY) (via Yahoo)
VeriFone Systems, Inc. designs, markets, and services electronic payment solutions that enable secure electronic payments among consumers, merchants, and financial institutions worldwide. The company provides countertop electronic payment systems that accept magnetic, smart card, and contactless/radio frequency identification cards; and support credit, debit, check, electronic benefits transfer, and various pre-paid products, as well as offers wireless system solutions.

Reader can access the full Q3 2011 earnings transcript PAY — Q3 Transcript

On Sept 6 2011, VeriFone (PAY) announced Q3 2011 earnings (via Reuter – Q3 2011 earnings release – Sept 6 2011):
* Q3 adj EPS $0.49 vs est $0.46
* Q3 rev up 21 pct
* Sees Q4 adj EPS $0.49-$0.50 vs est $0.49
* Sees Q4 rev $395-$400 mln vs est $395.9 mln
• VeriFone, whose customers are primarily financial institutions, payment processors, petroleum companies and retailers, is seeing growing demand for these mobile payment technologies in the United Kingdom ahead of the 2012 Olympics.
• “In London we have now signed nearly 6000 taxis to five-year processing agreements. UK retailers continue to embrace contactless systems,” Chief Executive Douglas Bergeron said on a conference call with analysts.
• The company continues to work with Google Inc to roll out the Google Wallet mobile payment service, which uses wireless NFC technology on mobile handsets.
• “The next big phase of the Google rollout is currently planned for the end of the month where we go from hundreds of locations to tens of thousands of locations,” CEO Bergeron said on the call.
• Verifone is also working with ISIS — an NFC-based mobile payment joint venture between AT&T , T-Mobile and Verizon Wireless; and PayPal Inc bring mobile payments to point-of-sale terminals in 2012.
• It has also won a $6.9 million contract with the Metropolitan Transportation Authority of New York City to depoly 1000 of its TransitPAY systems on buses which allow NFC-enabled smartphone-based payments.
• If initial rollouts lead to widescale deployment across the industry, the company’s revenue would grow by $100-$150 million in the U.S. and internationally.
Guidance:
• The company expects fourth-quarter adjusted earnings of 49-50 cents per share on sales of $395-$400 million. Analysts were expecting a fourth-quarter profit of 49 cents, on revenue of $395.9 million, according to Thomson Reuters I/B/E/S.
• Growth in North America will likely remain flat in the fourth quarter and will pick up next year, VeriFone said. It expects higher growth from Europe – especially from UK, France and Germany – and from emerging markets.
• Verifone raised its full-year adjusted profit outlook to $1.88-$1.89 a share on sales of $1.289-$1.29 billion, from its prior forecast of an adjusted profit of $1.80-$1.83 a share on sales of $1.17-$1.18 billion.

Technical Analysis:
• Expect PAY to encounter the 50-SMA resistance at around $38 range. The stock displayed a “death-cross” figure back in mid-July 2011 around $43. Looking forward, Mid-October is a better month for PAY.

NXP Semiconductor (NXPI) — As profile inYahoo –
NXP Semiconductors N.V., through its subsidiary NXP B.V., provides mixed signal solutions and semiconductor components primarily in Japan, Europe, South Korea, Rest of Asia Pacific, and the Americas. It offers small signal, power, and integrated discretes; and amplifiers, bipolar transistors, data converters, diodes, rectifiers, microcontrollers, sensors, and thyristors. The company’s products are used principally in automotive, identification, mobile, consumer, computing, wireless infrastructure, lighting, and industrial applications. It also develops audio and video multimedia software solutions for mobile phones. The company, formerly known as KASLION Acquisition B.V, was founded in 2006 and is headquartered in Eindhoven, the Netherlands.
News Updates:
• Marketwire -08/30/11 EINDHOVEN, NETHERLANDS- NXP Semiconductors N.V. (NASDAQ: NXPI – News) today announced that Turkcell (NYSE: TKC – News) (ISE: TCELL), the leading communications and technology company in Turkey, has selected the PN544 near field communication (NFC) radio chip for Turkcell’s recently launched T20 smartphone. The T20 handset, manufactured by Huawei, is one of the world’s first commercially available low-cost Android NFC-enabled smartphones.
On August 17, 2011, NXP Semiconductor (NXPI) announced increase in share buy back to 8,000,000 shares from 5,000,000 previouly.
Marketwire – 08/17/11 EINDHOVEN, NETHERLANDSNXP Semiconductors N.V. (NASDAQ: NXPI – News) announced today that its Board of Directors resolved to increase the number of shares to be repurchased under its stock repurchase plan as announced on July 29, 2011, from 5,000,000 shares to 8,000,000 shares.
On July 30, 2011, NXP Semiconductor (NXPI) announced Q2 2011 earnings (via Bloomberg – July 30 2011):
• Second quarter non-GAAP EPS of $0.51 missed the consensus estimate of $0.52 (GAAP EPS was $0.33). Revenue of $1.1 billion was flat year-over-year.
• NXP, based in Eindhoven, Netherlands, now sees NFC deliveries at the lower end or “perhaps even slightly below” an initially predicted range of 40 million to 100 million units, Chief Executive Officer Richard Clemmer said on an analyst conference call.
• The shortfall is caused by a combination of “formulation and agreement on the specific business models to support the ecosystem,” as well as business challenges some handset makers are experiencing
• “Carriers continue to try to figure out an economic proposition,” Clemmer said in a conference call today. The company still believes a substantial increase in mobile transactions will occur, albeit with a delay of one to two quarters, he said. For 2012, NXP expects a doubling of the number of units.
Guidance:
• Product revenue may fall as much as 5 percent in the third quarter versus the second quarter, the company said, and earnings per share will be in the range of 47 cents to 56 cents.
• For the third quarter, management guided non-GAAP EPS to $0.47 to $0.56, nowhere near the $0.66 consensus estimate and potentially falling short of non-GAAP EPS of $0.49 in the year-earlier quarter. In an ominous sign for the outlook beyond the third quarter, the company reduced its 2011 forecast of near-field communication chip shipments, explaining that mobile-phone operators are not expanding wireless payment systems as quickly as previously anticipated.

Technical Analysis:
• NXPI moved above the 50-SMA resistance at around $19 range on higher volume. The next level of resistance is around $25 (18% higher from the current price $20.23).

Disclosure: the author owns NXP Semiconductor (NXPI).

“In the business world, the rearview mirror is always clearer than the windshield”. Warren Buffett

1. ISM services-sector index rises to 53.3% in August — The Institute for Supply Management stated its service-sector index rose to 53.3% in August from 52.7% in July. Economists surveyed by MarketWatch expected the services index to drop to 51.0%.
2. 25 German MPs rebel in prelim European Financial Stability Facility votes — twenty-five lawmakers from Germany’s ruling coalition refused to back a draft law that would boost the powers of the euro zone’s rescue mechanism, underscoring the risk that Chancellor Angela Merkel might fail to secure a conservative majority for the measure.
3. New York subpoenas investors in Goldman securities — New York prosecutors investigating Goldman Sachs (GS) over its mortgage bonds have reportedly subpoenaed Morgan Stanley (MS), hedge funds and other parties that invested in the securities.
4. ECB, Bank of England on hold — The European Central Bank left its key lending rate unchanged at 1.5%; the Bank of England also left its key interest rate on hold at 0.5% and kept its quantitative-easing program on pause.
5. Obama outlines $447B program to reduce unemployment — President Obama unveiled a $447B plan to bring down unemployment, including $240B in payroll tax relief, $49B for extending unemployment insurance, and $50B for transport infrastructure.
6. BofA mulls plan to axe 40,000 jobs — just as President Obama looks to create jobs, Bank of America (BAC) is considering a plan to slash 40,000 positions over a number of years, The Wall Street Journal reported.

The week ahead — Economic data from Econoday.com:

“Markets can remain irrational a lot longer than you or I can remain solvent.” — John Maynard Keynes.

1. Yoshihiko Noda to be Japan’s new prime minister — Finance Minister and fiscal conservative Yoshihiko Noda will replace Naoto Kan as Japan’s next prime minister after beating Trade Minister Banri Kaieda in a run-off vote for the leadership of the ruling Democratic Party.
2. Obama to choose Alan Krueger to top economic post — Barack Obama today plans to nominate Princeton University’s Alan Krueger to replace Austan Goolsbee as Chairman of the White House Council of Economic Advisers.
3. China Widens Reserve Ratio to Limit Inflation — China broadened the base of reserves it requires commercial lenders to deposit with the central bank to control liquidity and limit inflation, economists said.
4. QE3 expectations rise after FOMC minutes — expectations for more bond buying have increased after the minutes from the FOMC’s August 9 meeting showed that some policy makers were in favor of the move in order to help spur the economy, for which the Fed painted a gloomy picture.
5. The U.S. government sued to block Deutsche Telekom’s $39 billion sale to AT&T Inc of T-Mobile USA — the U.S. government citing concerns it will harm competition in the wireless market and lead to higher prices.
6. IMF pours further doubt on strength of EU banks — an IMF analysis shows that marking the sovereign bonds of six highly indebted eurozone countries to market would reduce the tangible common equity of EU banks by about €200B ($287B), or 10%-12%. The countries concerned are the usual suspects of Ireland, Greece, Portugal, Italy and Spain plus Belgium.
7. UAW workers OK strike option — in advance of a contract expiration on September 14, UAW workers in Detroit have voted to give union leaders the option of calling a strike against Ford (F).
8. U.S. said ready to sue big banks over mortgages — a federal U.S. agency is ready to sue more than a dozen major banks, arguing that they misrepresented the quality of mortgage securities they put together and sold in the run-up to the bursting of the housing bubble, according to a published report. The suits are aimed at Bank of America Corp., Goldman Sachs Group Inc., J.P. Morgan Chase & Co., Deutsche Bank AG and others, the report said, citing three unidentified individuals briefed on the matter.
9. Bullish Sentiment Up Again — According to AAII’s weekly poll of investor sentiment, bullish sentiment rose to 38.62% in the latest week. This represents the fourth straight week where bullish sentiment has improved. Chart courtesy from the Bespoke Investment Group.

The week ahead — Economic data from Econoday.com:

“I measure what’s going on, and I adapt to it. I try to get my ego out of the way. The market is smarter than I am so I bend.” — Martin Zweig

1. Merkel again rejects eurobonds– — Angela Merkel reiterated her opposition to eurobonds despite increasing pressure within the EU and among investors, saying they are “not the answer” to solve the eurozone’s debt crisis.
2. Euro Zone Services Growth Eases, Factories Contract — The euro zone’s dominant service sector was effectively stagnant this month after two years of growth while manufacturing activity, which drove a large part of the economic recovery in the bloc, shrank for the first time since September 2009. The PMI for the manufacturing sector slid to 49.7—its first sub-50 reading since September 2009.
3. U.S. May Back Refinance Plan for Mortgages — the White House is reportedly considering a proposal to allow millions of homeowners with government-backed mortgages to refinance their loans at today’s lower interest rates of about 4%. The move could save borrowers an estimated $85B a year and it wouldn’t need congressional approval. However, it could face opposition from regulators and investors in bonds tied to the mortgages.
4. Bullish Sentiment increases for the 3rd straight week — below is the chart courtesy from the Bespoke Investment Group.

5. Greece sets minimum take-up rate for debt swap plan — Greece said last Friday it would not go ahead with a debt swap crucial to its second bailout if private sector holders of less than 90 percent of the bonds participate, failing to satisfy its international partners.

The week ahead — Economic data from Econoday.com:

“To me, the “tape” is the final arbiter of any investment decision. I have a cardinal rule: Never fight the tape!” — Martin Zweigs

1. S&P Backs French Triple-A Rating — Standard & Poor’s Corp. confirmed France’s triple-A rating and stable outlook for the country, dispelling investor fears that the top-notch grade of the euro zone’s second-largest economy may be at risk.
2. S.E.C. Files Were Illegally Destroyed — An enforcement lawyer at the Securities and Exchange Commission says that the agency illegally destroyed files and documents related to thousands of early-stage investigations over the last 20 years, according to information released Wednesday by Congressional investigators.
3. DOJ probes S&P for inproper ratings –the Justice Department is reportedly investigating whether S&P improperly rated dozens of mortgage securities in the lead-up to the financial crisis.
4. U.S. regulators step up oversight of EU banks — The NY Fed is reportedly demanding more information from big European banks about whether their U.S. units have the ability to fund themselves.
5. Spain to unveil more austerity — Spain announced further austerity measures in a bid to fend off debt market attacks but avoid the kind of drastic cuts that could damage the ruling Socialists’ chances in November’s general election.
The government is expected to unveil savings of around 5 billion euros ($7 billion) by front-loading tax payments from large businesses and cutting drug costs for regional governments with a new bill on generic medicines.

The week ahead — Economic data from Econoday.com:

“I sell Euphoria and buy Panic. Gapping to the upside is “euphoria”, while gapping on the downside is “panic”. Jim Rogers.

1. S&P downgrades Fannie, Freddie to AA+ from AAA
2. Top largest point drops for the Dow Jones Industrial Averages — according to the WSJ

3. China inflation growth poses dilemma for central bank — China inflation rose 6.5% in July, beating forecast and hitting its highest level in three years.
4. Swiss take more measures against strong francs — The Swiss National Bank said last Wednesday it was taking additional measures against the strength of the franc after the rise in risk aversion on global markets “further intensified the overvaluation of the Swiss franc in the last few days.”
5. Six Republicans named to ‘super committee’ — Republican congressional leaders named six members of their party to a newly created “super committee” charged with finding $1.2 trillion in deficit reductions over the next 10 years.
6. Fed: Low rates to stay till at least mid-2013 — The Federal Reserve expressed much more concern about the economic outlook and said it would hold interest rates at ultralow levels “at least” through mid-2013, the first time the central bank put a time frame on their duration.
7. Four European countries impose short-selling ban — Belgium, Italy and Spain round out the other countries that will impose or extend existing short-selling bans beginning Friday, according to a statement from the European Securities and Marketing Authority late Thursday. The ESMA coordinates securities and trading rules among European Union member states.

The week ahead — Economic data from Econoday.com:

The traditional method of payment of cash and checks are moving aside based on a recent major consumer trend — mobile payments. As smart-phones have become popular, people have become more comfortable using digital currencies and mobile payment both to shop for goods online and at traditional brick-and-mortar retail stores. Stores as varied as CVS, McDonalds and New York ‘s taxi are currently accepting mobile payments.

Smart-phone providers Apple iPhone, Google Android and others are gearing up to battle for the customer wallet. Mobile payment could be a simple process of holding a phone near a point-of-sale terminal with payment made electronically. The technology behind this process is called Near Field Communication (NFC). NFC is a short-range, wireless technology that allows secure communications between two proximate devices.

Currently payment processing companies such as Visa and MasterCard collect fees for each transaction and this is a very lucrative revenue source. Competing companies recognize this near monopoly technology and are rushing to cash in on this area.

Currently, there are two dominant smart-phone players in this area. Google ‘s Wallet and Apple’s iPhone. Google’s Wallet NFC payment program has lined up major players such as Citi Bank, First Data, MasterCard and Sprint. Google is preparing to launch this summer in San Francisco and New York City.

Apple ‘s iPhone captures major market share in smartphones and has successfully dominated high volume businesses such iTunes and Apple TV. With NFC, a fee is collected for each transaction, it is certain that Apple will want to capture this huge market.

To date, Apple had not announced an NFC capable-phone. Apple ‘s iPhone 3 and iPhone 4 currently do not have NFC-capability; Experts are certain that the iPhone 5 will be NFC capable. To enable mobile payment, a chip with NFC ‘s capability is included in a smart-phone and at point-of-sale terminal.

As an interim solution, for devices without NFC capability an SD card is an approach that implements all NFC-related functionality. With mobile devices that currently have an SD card slot, users can plug in the card to get immediate NFC capabilities.

To protect its dominance, Visa and MasterCard are using micro-card type to be NFC-enabled. Visa is using a payWave technology, NFC-enable like chip (micro-SD card) to insert into a phone. Users then download an app to make a transaction. To date, there are eleven banks that have signed up including JP Morgan, Bank of America and Well Fargo.

On August 9, 2011, Visa announced plans to accelerate chip migration and adoption of mobile payments.

Companies:•
NXPI – a Dutch company that makes chip that runs Google ‘s Wallet. The market expects 472 million smart-phones to be shipped in 2011. On Aug 2, 2011, NXPI announced a complete fingerprint-enabled payment in the US via a Motorola Android phone using technology from NXPI, AuthenTec and DeviceFidelity.

VeriFone (PAY) – makes the terminals that read credit cards; The company announced that it will enable all of its devices with NFC technology by the end of 2012.

Technology Partnership:Joint ventures with credit card companies, cellular providers and internet companies:
• Isis – joint venture with American Express (AXP), Mastercard (MA), Visa (V) and AT&T (T), T-Mobile, Verizon and Discover Card (DFS). Payment is waving their phone at the point-of-sale terminals.
• Google Wallet – partnership with Citigroup©, Mastercard (MA), First Data and Samsung.

Competing Technology:
• Ebay’s paypal and prepaid credit cards from Netspend and GreenDot.
• Social Networking ‘s Facebook – BitCoin (virtual currency) – digital currency developed by MIT.

Risks:
• Federal Regulation – Durbin Amendment stated that the Federal Reserve can have a say on interchange fees proposed by Visa and MasterCard.
• Security of financial data

HedgeFunds Holding:
• Third Points, LLC – Dan Loeb
NXPI
Nxp Semiconductors N.v.
2011-03-31 Add History
1.42% $20.93 – $31.95
($26.4) $ 17.09 -35% Add 50.78% 4,750,600

George Soros
2011-03-31 New Buy $20.93 – $31.95 $ 17.09 -35% 11100 History

In summary, mobile payment NFC technology’s penetration rate will be extremely huge over the next several years. The U.S market is currently in its infancy in adopting this technology. Japan and Korea are currently using NFC-enabled mobile payment technology. Emerging markets such as Brazil, India and China represent a huge un-tapped market. Recent research from Juniper Research indicates the mobile payments market will triple to $670 billion worldwide by 2015.

In the near term, the major markets are in correction mode. Investors with a short-term outlook would be wise to wait for the market upturn prior to making an investment. Those with a longer term horizon might want to initiate a position in this growing industry as these stocks have corrected anywhere from 20% to 40% from their 52-week highs.

“Risk comes from not knowing what you’re doing” Warren Buffett

1. S&P Rating Downgrades US rating from AAA to AA+ — S&P lowered the U.S. long-term rating one level to AA+ after markets closed on Aug. 5 while keeping the outlook at “negative” as the New York-based ratings company becomes less confident that Congress will end Bush-era tax cuts or tackle entitlements. Below is the chart courtesy from Standard & Poor.

2. Factory activity slows across the world — hopes for global economic growth have taken a dent after factory activity in China and Europe decelerated in July and contracted in the U.K. Eurozone PMI fell to 50.4 from 52 in June, its lowest level since September 2009. New orders, an indicator for future prospects, contracted with a fall to 47.6. China’s official PMI dropped to 50.7 from 50.9 previously
3. DOJ intensifies Nortel patent investigation — the Justice Department is intensifying a probe into whether the six companies that recently bought $4.5B in patents from Nortel could use the IP to unfairly hinder smartphones that operate Android (GOOG).
4. EU not considering rescue plans for Italy, Spain — The European Union has no plans to provide rescue loans to Italy and Spain, despite the rising borrowing costs facing these countries, a European Commission spokeswoman said last Tuesday.
5. Swiss central bank battles to halt franc’s rise — The Swiss National Bank was pulled into Europe’s sovereign-debt crisis Wednesday, cutting its key lending rate to zero and taking other steps short of outright intervention in the foreign-exchange market to halt the Swiss franc’s rise to record levels versus the beleaguered euro.
6. Moody’s and Fitch affirm U.S. rating — with the Senate passing the debt deal and President Obama signing it into law, Moody’s and Fitch have confirmed the U.S. will keep its AAA rating. However, both said more deficit-reduction measures are needed and Moody’s assigned a negative outlook.
7. Bank of Japan expands asset purchases — The Bank of Japan boosted its asset-purchasing program on Thursday at a policy setting meeting that was cut short following the nation’s intervention to weaken the yen. The Bank of Japan raised its total asset-purchase program to approximately 50 trillion yen ($630 billion), from ¥40 trillion previously.
8. Dow Theory generates sell signal — both the Industrials and Transports hit new lows this week; Thus, generate the dreaded sell signal.

The week ahead — Economic data from Econoday.com:

“THE STOCK MARKET IS A NO-CALLED-STRIKE GAME. YOU DON’T HAVE TO SWING AT EVERYTHING – YOU CAN WAIT FOR YOUR PITCH. THE PROBLEM WHEN YOU’RE A MONEY MANAGER IS THAT YOUR FANS KEEP YELLING, ‘SWING, YOU BUM!’” — Warren Buffet

1. Moody’s cuts Greece to just above default — Moody’s has cut Greece’s ratings three notches to Ca and left it just one notch above default, which the agency said is “virtually 100%” likely to occur.
2. Iran, China discuss barter system — Iran and China are reportedly in negotiations about using a barter system to allow the latter to pay for up to $30B of oil debt with goods and services. The talks come as U.S. sanctions have made it extremely difficult to conduct dollar-denominated business with Iran.
3. India hikes key interest rate more than expected — The Reserve Bank of India on Tuesday hiked its key lending interest rate by a larger-than-expected half percentage point to 8%, as it tries to tame what it says are mostly demand-led inflation pressures. The move marked the 11th time the central bank has hiked interest rates since March 2010.
4. House panel probes Treasury over S&P rating — a House oversight panel is examining whether the Treasury tried to inappropriately influence S&P before it revised its outlook on the U.S.’s debt rating to negative in April.
5. Jefferson County weighs bankruptcy decision — the County Commission in Jefferson, Alabama, is close to file for the biggest municipal bankruptcy in U.S. history. The county has proposed that creditors including JPMorgan (JPM), which holds most of the bonds, agree to reduce the debt to about $2B.
6. Boehner pulls debt bill — Republican John Boehner postponed a House vote on his debt-reduction bill following his failure to overcome a rebellion within GOP ranks.
7. EU puts Spain on review for downgrade, bond yields rise — Greece’s second bailout and EU measures to prevent contagion may now be acting as a catalyst for the crisis spreading after Moody’s early today put Spain’s government-bond ratings on review for a possible downgrade from AA2.
8. GDP climbed at a 1.3 percent annual rate in 2Q, following a 0.4 percent gain in the first quarter — the figure was less than previously estimated. The median forecast of economists surveyed was for a 1.8 percent increase.
9. US Debt Holders ($14.3 Trillion) — below is the chart depicting U.S. debt holders courtesy from Congressional Quarterly.

The week ahead — Economic data from Econoday.com:

“Only when the tide goes out do you discover who’s been swimming naked” — Warren Buffett

1. Debt Deal Search Intensifies — as the debt talks continue to go nowhere, President Obama has accepted that a grand $4T plan is out of reach. The most likely option now appears to be a Senate-hatched plan to let Obama raise the debt ceiling by $2.4T in three increments but to give the House “ownership” of the program so that it has a better chance of passing.
2. Gang of six plan offers hope — politicians from both sides have given varying endorsement to a revived $3.75T deficit-reduction plan from a bipartisan group of senators. The “gang of six” proposes immediate spending cuts of $500B and to raise $1.2T in revenues through ending tax breaks, but they also envision tax cuts of $1.5T through broad reform.
3. Fed planning for debt default — the Fed and the Treasury have been preparing for a U.S. default, FOMC voting member Charles Plosser said. Some of the planning is operational and some policy related, such as whether the Fed could treat Treasurys as collateral for loans.
4. Euro leaders agree on easing lending for Greece — The new aid plan for Greece, tagged at 109 billion euros ($157 billion), counts on participation from private investors, who would agree to swap their Greek bonds for longer maturities. The European Union estimated a private-sector contribution of around 50 billion euros when counting a debt buyback that’s still not fully formed.
5. Senate rejects House budget-cutting plan — the Senate rejected a House-passed plan that would raise the U.S. debt ceiling and make deep cuts in government spending. Senators voted 51-46 to kill further consideration of the House bill, which would also require passage of a balanced budget amendment.
6. Bullish sentiment rises to 39.9 — according to the latest figure from the AAII. Below is the chart courtesy from the Bespoke Investment Group.

The week ahead — Economic data from Econoday.com: