SCDigest Editorial Staff

The recent renewed debate about Wal-Mart and its RFID program has once again brought the subject of EPC tag costs to the fore. (See (See RFID Program at Wal-Mart Going Slow, Wall Street Journal Says;  Xterprise CEO Rebuts Negative WSJ Article; Wall Street Journal Gets at Least Part of RFID Story Wrong; Investment Company RW Baird Says WSJ Article on RFID Slowdown at Wal-Mart Part Right, Part Wrong; Just what is the “Sweet Spot” for RFID?  RFID Debate Continues, as Sara Lee CIO says Technology Limitations Mean RFID Not Ready to Deliver Benefits to Consumer Goods Companies Yet; Now Wal-Mart CIO Rollin Ford Rebuts Wall Street Journal Article)

Sara Lee CIO George Chappelle, for example, recently complained that high RFID Tag and application costs were large barriers to ROI and adoption. “Tag prices have not come down significantly,” he said.

Most observers believe current Electronic Product Code tags are being priced at a level not much if at all above cost, in an effort to spur the market and establish economies of scale. When tag and reader maker Alien Technology released its filings pursuant to a potential initial public stock offering in 2006 (later cancelled), the company had negative gross margins, meaning it cost more to make the tags than it sold them for.

One key question, then, is whether current EPC chip makers, such as Texas Instruments, would want to participate in a market in which the primary dynamic is price, and the product itself if rapidly heading towards commodity status.

SCDigest Says:

One key question, then, is whether current EPC chip makers, such as Texas Instruments, would want to participate in a market in which the primary dynamic is price, and the product itself if rapidly heading towards commodity status. What do you say? Send us your comments here

Craig Harmon, president of Q.E.D. Systems and a long time expert in automatic identification technology and standards, doesn’t think so.

“No one wants to focus on a market where downward pressure on price is the primary driver in the market,” Harmon told Supply Chain Digest.“To succeed in such a commodity marketplace, you must still be able to command a price that is a reasonable margin above cost. Constant pressure to reduce price provides no business case in the marketplace [for the tag manufacturer]”.

This is important for users of RFID too, as the cost to manufacturer will be in the end the real driver of tag pricing, and the lack of participation by some leading tag manufacturers in the basic EPC market may slow technical and price improvements.

“This is not a market desired by Texas Instruments or NXP [a spin off of Philips Electronics].  They do not want to sell commodities,” Harmon added.

“The companies making "any" money selling RFID are those who are NOT selling five cent tags,” Harmon also observed.“The active, real-time location system, and battery-assisted passive vendors are making some money. Would Lockheed Martin have purchased Savi or Zebra have purchased WhereNet if they were buying a loss leader? Intelleflex is also moving smartly in the battery-assisted passive/larger memory size market.”

What do you think is the future of EPC tag pricing? Will larger technology companies want to participate in a tag market that is basically commodity situation, with low margins and differentiation? Let us know your thoughts.