Apple Pay-AliPay Deal Would Boost NXP -- Barron's

Sterne, Agee & Leach

Apple at the WSJDLive conference noted a potential for a "marriage" partnership between Apple Pay and AliPay.

AliPay is the mobile payment arm of Alibaba Group Holding (ticker: BABA). It has about 550 million users in China and dominates the China mobile payment market with a 70%-plus share. We believe Apple ( AAPL) has about 800 million user accounts. The top three mobile payment providers in China are AliPay, TenPay and UnionPay, but the potential tie-up here creates a growing opportunity.

AliPay dominates the China payment market. The proliferation of mobile payments with smartphones will be positive for NXP Semiconductors ( NXPI) with near field communication (NFC) and Secure Element ensuring the security of transactions and creating a domino effect. We reiterate our Buy rating on NXP and $82 price target.

Apple's Chief Executive Tim Cook at the WSJDLive conference talked about potential partnerships between Apple Pay and AliPay. The proliferation of mobile payments will be positive for NXP as more smartphones enter the mobile payment ecosystem.

As we have noted before, assuming 50% payment penetration in smartphones by 2017 is $300 million-$700 million a year and 35 cents-70 cents of incremental revenue and earnings per share for NXP. Our $82 price target, about 14.6 times our calendar 2015 estimated EPS, is still an about 30% discount to peers.

Our calendar 2015 revenue and EPS estimates are $6.3 billion and $5.61, respectively, and our calendar 2016 revenue and EPS estimates are $6.9 billion and $6.11, respectively. Continued execution, and product cycles position NXP as a multiyear story at attractive valuation. NXP has an analyst day Nov. 5. While the mobile payment ramp requires many more payment-retailer relationships, customer and handset original equipment manufacturers (OEMs) adopting, we believe it is still early and there is significant potential.

Mobile payments are driven by strong partnerships, as Apple Pay had 22,000 retailers and was available at 220,000 storefronts at launch and 500 banks signed up.

-- Vijay Rakesh

-- Troy Cowdrey

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