Supply Chain Digest editorial staff

The News: Most public companies with significant RFID-related business have not yet seen much uptick in volumes, according to SEC filings, earnings call and other available information.

The Impact: These public-company numbers are probably a better gauge of the size and growth of the RFID market than the upwardly-biased numbers of many industry market studies. The RFID market is growing, but at this point still slowly. Is 2007 now the year?

The Story: Companies and individuals interested in the size of the RFID market have no shortage of estimates by analyst firms, consultants and other sources. Supply Chain Digest, for example, recently reported on one of the most recent estimates, from Gartner, which sees corporate spending on RFID beginning to accelerate, with worldwide growth up 39% in 2005 to $500 million and expected growth to $750 million in 2006.

These estimates are clearly of interest to RFID related technology and services vendors, but also often to end user companies that hope to gain a feel for how fast other companies are adopting the technology.

The various reports have shown a wide range in their estimates of actual spending to date and even more variability on projected market growth. At a headline level, this is in part due to how each report defines the RFID market. For example, the studies can vary by whether it is a global versus regional analysis, the specific product and service categories included (software, hardware, consulting, etc.), whether it is just focused on Electronic Product Code (EPC) or all RFID-based technologies, etc.  

The best gauge of the current state of the RFID market, however, may be to look at the numbers reported from public companies with significant interest in RFID. These include two primary types of companies: printer, scanner/reader, and tag/media companies (e.g., Symbol Technologies, Zebra, Printronix, Intermec, Avery Dennison, and Paxar) and software-related companies (e.g., Manhattan Associates, Verisign) that have focused RFID offerings.

The level of RFID-related revenue as a percent of the company total can be quite different for any of these companies. As yet, there are no “pure play,” public RFID companies, at least in North America. However, many of the public companies are making statements related to their RFID business in public earnings releases and related conference calls, and the evidence coming in from results in the last fiscal quarter of 2005 seem to show that actual deployment is still very soft. While interest is high, real spend hasn't really followed.

For example, Printronix CEO Robert Kleist said “RFID revenue was flat compared with the second fiscal quarter and prior year quarter,” for the printer manufacturer in the fourth quarter (Printronix’s fiscal third quarter).

Symbol Technologies’ new CEO, Sal Iannuzzi, has also recently toned down short-term RFID-related expectations. "In time, it [RFID] will be a very significant market, but whether that happens in '07 or '08, I don't know that. It's such an embryonic market that it's not about revenue yet … in some ways you can view it as a startup," Iannuzzi recently told eWeek magazine. However, Symbol’s RFID-based revenue did in fact show substantial growth in 2005, though still representing less than 3% of total company revenue.

Intermec has declined to specifically break out RFID-based revenue, according to Bear Sterns analyst Philip Alling, but in the most recent quarter it did say it recognized about $1.1.million in license revenue associated with its various Intellectual Property licensing programs. According to Alling, however, the most of that was from amortization of up-front royalty fees, while “there were minimal [usage-based] royalty payments in the quarter.”

Avery Dennison’s fourth quarter earnings release noted a negative bottom line impact from “higher spending associated with the development of the Company's radio frequency identification (RFID) business,” while there is no corresponding mention of any top line revenue impact.

Symbol Technologies, in large part through its acquisition of Matrics in 2004, did see strong RFID growth in 2005. Symbol has not yet reported Q4 results, but for the first three quarters of 2005, RFID segment revenue was reported as just over $31 million, up from only $1.8 million during the same period in 2004. It is believed most of this increase was from Symbol sales of RFID to support Wal-Mart’s Store and DC rollout of RFID readers, as well as large sales to the Hong Kong and Las Vegas Airports.

Here’s the breakout of Symbol’s RFID revenue by quarter since it’s acquisition of Matrics in September, 2004:

On the software side, Manhattan Associates also just announced it would no longer break out RFID revenue separately. This is understandable, as on the software side especially it will be increasingly difficult to separate “RFID”-based deals from a traditional sale. Nonetheless, Manhattan did say it had three RFID-based sales in the quarter, generating about $800,000 in revenue, versus eight RFID deals and $1 million in revenue in the third quarter, and eight deals and $1.2 million in revenue in Q4 2004.

Another Bear Sterns analyst, Andrew Matorin, notes that there may be a few non-public companies, such as Alien Technologies and Impinj, which are also seeing strong levels of RFID growth. There are a large number of “pure play” non-public RFID companies.

Still, it’s no surprise to anyone in the business that real spending on RFID is remains relatively small. Industry studies and estimates should be taken with a grain of salt, as there is a often a built-in upward bias, for two reasons: first, vendor companies that buy the reports are more likely to do so for those studies that show strong market growth; second, studies that predict significant market growth are in general much more likely to be picked up and reported by various media outlets than those that predict more modest numbers.

SCDigest believes that if you are really interested in understanding what’s happening in the RFID market in terms of company spend, the actual financial results of RFID-related public companies provide the most accurate view. This may become more difficult if these companies cease to break out RFID revenue separately, but it would seem most will at least need to comment on the impact of RFID on overall results.

Article key words: RFID, RFID Market Size