RFID Deals Send Mixed Messages

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August 10, 2006 (5:02 PM EDT)

By Laurie Sullivan , TechWeb Technology News

Fans and critics of radio frequency identification technology are receiving mixed messages on the health of the RFID industry.

ABI Research on Thursday reduced its 2007 market forecast for radio frequency identification software and services revenue to $3.1 billion, down 15 percent from earlier estimates.

Market consolidation, collaborative solutions, growing availability of off-the-shelf commercial RFID software packages, and improving level of skills in RFID project planning are to blame for the decline, says RFID practice director Michael Liard.

One signal comes from RFID chip and reader maker Alien Technology Corp. The Morgan Hill, Calif.-based company on Aug. 4 withdrew plans to file for an initial public offering with the Securities and Exchange Commission.

Alien had been expected to begin trading July 28, offering 9 million shares at between $10 and $12 per share in a bid to raise $99 million.

The company didn't disclose a reason for the withdrawal in Friday's filing, nor respond to a request for comment. But an ex-employee speaking on the condition of anonymity said the "IPO didn't go well; therefore, people were laid off in order to keep the company running." Reader and tag manufacturers are "holding their breath" as Wal-Mart Stores Inc. decides whether or not to expand its RFID project into more distribution centers and stores worldwide. "If Wal-Mart doesn't continue expansion plans, it's likely the RFID market will continue to decline," the ex-employee said.

Wal-Mart says it's moving along with plans to expand. Staying on track means the retail chain will deploy RFID to track goods in more than 1,000 Wal-Mart, SAM'S CLUB and distribution centers by the end of this year. The project continues to rollout in Louisiana, Missouri, Oklahoma, Texas, Mississippi, Tennessee and Kentucky.

The next group of suppliers, an additional 300, is scheduled to go live by January 2007, bringing the total of participating suppliers to more than 600.

"People overstated the growth in the market," said Jeff Woods, Gartner Inc. vice president. "The market is growing between 40 percent and 45 percent annually, but it's probably not the growth that some had in mind or expected."

Woods estimated the market for RFID software and passive- and active-RFID tags and readers will reach $751 million in 2006, up from $504 million last year. Woods said the RFID market isn't "tied to the hip of retail and consumer packaged goods" companies, and in 2007 expects the market to reach $1.15 billion.

Several deals announced this week demonstrates RFID projects are moving along. IBM Corp. on Tuesday unveiled a suite of RFID software and services -- IBM RFID System for Pharmaceutical Track and Trace " designed to help pharmaceutical companies track and trace drugs as they move through the supply chain.

The application creates a "pedigree" for the drug shipment, either paper or electronic-based, to detail the history of who manufactured and handled the drug. IBM's system includes the WebSphere RFID Premises Server to collect data from RFID readers embedded with IBM's WebSphere RFID Device Infrastructure middleware.

On Wednesday, Savi Technology, which Lockheed Martin Corp. acquired in June, said the Spanish Armed Forces (SAF) said it now has an active radio frequency identification (RFID) network and software platform that ties in with systems deployed by the North Atlantic Treaty Organization (NATO).

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