Broadcom's Little Deal for Innovision Could Have a Big Payoff

Based in the UK, Innovision has developed a variety of cutting-edge semiconductor technologies for mobile applications, with an emphasis on short-range data communications. But the company is fairly small and has never generated a profit. Of course, the global recession has taken a toll.

What to do? In this case, the answer is to sell out. Innovision recently agreed to a $47.5 million purchase by Broadcom (BRCM). Listed on the AIM exchange, Innovision's shareholders got a nice 84.2% premium. The deal is expected to close in the third quarter

While it's a small deal, the acquisition of Innovision points to a key growth opportunity: NFC, or near-field communication technology. If it gets traction, it could mean that your smartphone may become your wallet.

A Look at Innovision

NFC enables data exchange between devices for distances up to about 10 centimeters. Thus, if integrated in a smartphone handset, it is possible to do a variety tasks for contactless payments. For example, a shopper can swipe the phone across a cash register to purchase for groceries. Or, you can use your phone to buy a ticket for a subway ride.

Sounds great, huh? But like any new technology, adoption has been difficult. Yet, over the past year, it looks like Innovision has been making headway. The company is already implementing NFC technologies for several tier-1 operators. In fact, there is also a deal to roll-out these systems in China and royalties should come in the second half of this year.

In other words, Innovision is seeing validation of its technology, which is fairly sophisticated. After all, the security concerns are significant as well as the need to integrate with many mobile platforms.

Ready for Prime Time?

Based on revenues of about 2 million pounds, Innovision is tiny. But with the heft of Broadcom, the impact is likely to be transformative for NFC technologies. The company has a good sense of timing and knows how to integrate different functions on a handset, like WiFi, Bluetooth and GPS.

So how big can this market get? It's a bit sketchy but it appears to be poised for growth. Keep in mind that Nokia (NOK) announced that all its new smartphone for 2011 will have NFC capabilities. Clearly, the company has incentive to do this because of lagging sales and an intense competition from rivals like Apple (AAPL), it looks like wide adoption of NFC may be a reality fairly quickly.