RFID Industry Activity on the Rise

Surging corporate activity signals investment community's belief in near- to mid-term potential of radio frequency ID market, VDC believes

Surging corporate activity signals investment community's belief in near- to mid-term potential of radio frequency ID market, VDC believes

Natick, MA  June 30, 2006  Following provided by Venture Development Corporation (VDC), an independent technology market research and strategy consulting firm that specializes in a number of retail automation, radio frequency identification (RFID), automatic identification and data capture (AIDC), datacom/telecom and defense markets.

The surge of corporate and financial activity within the RFID industry is a signal that the investment community believes that the potential of RFID is expected to become a near-to-mid-term reality. Within the past month alone, there have been numerous announcements from RFID vendors including Alien Technology, Savi and Symbol.

Alien Files IPO

Alien Technologies  a leading RFID inlay, tag and reader manufacturer  recently filed its S-1 with the US Securities and Exchange Commission (SEC) in anticipation of the public offering of its stock. With the announcement, Alien has become the first true "pure-play" RFID vendor to go public. Now that Alien has put a stake in the ground, how will the company's IPO impact the industry and influence the investment community?

In some ways, an Alien IPO might be considered a natural event for an RFID industry finally gaining some momentum. In other ways, an Alien IPO could look a bit like 1999, when hundreds of companies went public without proven demand for their offerings or a predictable cash flow. We think that there are cases to be made for and against investing in this offering.

One VDC staffer thinks that the strongest argument is that in favor of the IPO  not for the potential return on Alien shares, but for the benefits the IPO will offer to the rest of the industry and the investing public. An Alien IPO will offer us perhaps our most accurate bellwether yet for tracking the health and wellness of the RFID market, RFID suppliers and RFID investment prospects. Why? Because an Alien IPO will give us insight into a pure-play RFID company that operates in a number of levels of the RFID technical value chain and a wide range of RFID application segments. Alien's IPO will give us the opportunity to review legal documents that lay out the recent historical, current and conservatively projected near-term health and wellness of a pure-play RFID supplier with exposure to a number of RFID opportunities.

Another VDC staffer sees Alien's maneuver as a positive sign for the industry, but he remains cautious. First, the Alien IPO has already initiated a new round of intellectual property squabbles. Just last week, Alien filed a declaratory judgment against Intermec to disprove its violation of Intermec's IP. Although this can be seen as a preemptive strike on Alien's part to gain more control of the timing of the suit, an adverse outcome may have an unfavorable impact on its IPO. Additional points to consider include:

  • Alien has never been profitable. The company's losses have doubled over last year, reaching nearly $53 million for the fiscal year that ended last September 30. With losses surpassing revenues ($19.8 million in 2005) and the company facing significant costs of goods sold, Alien's financial outlook remains uncertain.

  • Alien is challenged in predicting the future growth of the RFID market. The S-1 document reads: "In the past, both we [Alien] and other industry participants have overestimated RFID market size and overall growth rates. To date we have had limited success in accurately predicting future sales of RFID products generally and our RFID tag products in particular. Widespread market acceptance of RFID products in the application areas that we target is uncertain. To date, the adoption rate for RFID technology has been slower than anticipated or forecasted by both us and certain industry sources." While publishing these statements is understandable from a risk perspective, they unfortunately do not bolster the confidence of would-be investors.

  • Gen2 brings a new wave of competition. Alien was an early supply chain market leader via its proprietary Gen1 UHF offerings; however, as the retail consumer packaged goods (CPG) supply chain fully transitions to Gen2, the sea of competitors and alternative solutions will rapidly grow. In addition, the question as to whether Alien's Gen1 technology will become obsolete or remain viable for niche applications remains unanswered.
With the numerous risk factors involved, it is difficult to judge the viability of Alien's IPO.

Lockheed Martin Acquires Savi

The announcement was made on May 4 that Savi is to become a wholly owned subsidiary of Lockheed Martin, managed by Lockheed Martin Integrated Systems & Solutions business unit.

VDC feels that there is great synergy between the two companies and believes that this relationship will generate tremendous benefits. For example:

  • Savi will gain access to Lockheed Martin's GPS/satellite, sense/respond capabilities and command and control algorithms in support of advanced feature supply chain solutions, while Lockheed Martin will be able to provide RFID technology to its customers;

  • Savi's service offerings will be expanded/complimented with Lockheed Martin's core competence in software/systems engineering in space, air and ground systems, and Lockheed is expected to leverage Savi's supply chain and logistics security experience;

  • Savi will be able to increase market presence in its target markets, while Lockheed Martin will be able to capture more revenues from its core market by offering a more diverse product portfolio; and,

  • The influx of capital, technology and manufacturing expertise is expected to spur innovation for feature rich, high-performing active RFID technologies.
Not only does the relationship strengthen both companies' businesses models, it also greatly benefits the RFID industry and the end-user community as well. End users, especially those in the government sector, will be exposed to broader and more innovative product offerings and more service expertise and experience. It will also encourage more investors to take notice of the RFID market.

Symbol and NCR Sign Reseller Agreement

In early May, Symbol and NCR signed a global agreement that names NCR a PartnerSelect Premier Business Partner, who is entitled to resell Symbol's portfolio of enterprise mobility products, which consists mainly of RFID readers and tags.

As a provider of end-to-end, global RFID solutions, NCR's TransitionWorks portfolio of RFID solutions includes "thoughtware," hardware, tags, services and software. Symbol's enterprise mobility solutions are comprised of advanced data capture products, mobile computers, wireless infrastructure, services, and EPC-compliant RFID products.

The partnership is expected to be beneficial to both companies as well as the end user community in a number of ways:

  • It will help both companies retain their strong positions in the retail market;

  • The companies will now be able to provide a more complete solution for their RFID customers;

  • NCR's deep industry and deployment experience will be complemented with Symbol's high-performance enterprise mobility solutions;

  • Symbol will have the potential of expanding into new geographical markets such as the Asia-Pacific, as well as new vertical markets such as the financial sector; and,

  • End users will have access to more support for large-scale global RFID system implementations.

Additional Articles of Interest

 Contemplating RFID? Here are three critical questions to answer before embarking on a radio frequency identification initiative. Read "Recognizing Real RFID Adoption Potential," in the February/March 2006 issue of Supply & Demand Chain Executive.

 A recent independent study revealed that Wal-Mart customers are finding the items they wanted in stock more often due to the retailer's use of RFID technologies when compared to control stores. Read more in "Wal-Mart Achieving Improved On-shelf Availability with RFID, Study Finds" on SDCExec.com.