RFID Garnering Headlines...
Radio frequency identification (RFID) technology is a subject we've covered a few times over the past year, and it's an emerging technology that has gotten a lot of attention from tech analysts, retailers, suppliers and consumer groups. Recently, news flow has picked up in the RFID space again and we wanted to take a quick look at the latest developments.
For starters, our only exposure in the RFID space is through VeriSign (VRSN), which last year was tapped to run the central RFID directory system. VRSN will essentially be playing the same role for RFID in which it does for domain names - running a central database. That database was tested at the EPCglobal US Conference last week in Baltimore.
Consumer goods giants Gillette (G) and Proctor & Gamble (PG) each tested EPCglobal Network technology and services (EPC stands for "Electronic Product Code") at the show. P&G's demonstration was interesting in that the company displayed how the ability to track tagged products can keep counterfeit products off the shelves. RFID's ability to better manage the supply chain has been mentioned often, but battling counterfeiting is something we haven't heard much about, and it bodes well for the technology.
VRSN's role in the future of RFID is both central, and still largely undefined. While the company will run the central depository for RFID information, it has also hinted that it may roll out other services, much in the same way it registered domain names through its old Network Solutions unit.
RFID is still in its nascent stage when it comes to large-scale deployment, but already there are concerns that the supply of RFID tags is too high to meet demand, though there is a catch.
The ARC Advisory Group, a research firm that focuses on supply chains, said in a report earlier this week that there could be a shortage of RFID tags that meet standards because there are only two primary vendors, both privately-held, Alien Technology and Matrics. Retail giant Wal-Mart (WMT) has already backed off on a previous demand that would have forced its 100 largest suppliers to ship products on RFID-enabled pallets by January 2005. For now, the company is working with suppliers and running a pilot program for its distribution centers in the Dallas, TX area.
The supply problem, however, is really a demand problem, as Alien and Matrics say they haven't received large, firm orders yet for tags, and won't increase production until they do. Major chipmakers like Texas Instruments (TXN) are waiting on the international standards group (ISG), the same one which awarded VRSN the directory system deal, to finalize standards before entering the standard-compliant market. Nonetheless, a number of big names are preparing to assault the RFID space.
In the past few weeks alone, news reports and press releases indicate that Microsoft (MSFT), IBM (IBM), SAP (SAP), Hewlett-Packard (HPQ) and Infineon (IFX) are all preparing products for the RFID space or are beginning to invest serious dollars into RFID product development. At the same time, a wild card has emerged, as China, Japan and Korea may jointly develop a separate RFID standard than the U.S. and Europe are prepared to subscribe to. Likewise, the Federal Trade Commission (FTC) is beginning its first serious examination of RFID.
We last looked at RFID a few months ago, noting that the story is still developing, and that quality investment opportunities in the space are few and far between. We still believe this is the case, but we also feel that we'll begin to get some visibility in this area over the next year.
For now, VRSN will continue to have dominante exposure in the RFID space. Though RFID will not have an immediate revenue impact on the company, VRSN's role in the proliferation of RFID will position it in a sweet spot to provide suppliers and retailers with services that it can neatly combine with its existing Internet and telecom infrastructure services.
