Frost: Promise of 5-Cent Tag Cheers Venture Capitalists in RFID Market
January 5, 2007 // Published as a news service by IHS
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Venture capitalists and the investment community are upbeat about the 2008 launch of the 5-cent tag in the world radio frequency identification (RFID) market.
According to Frost & Sullivan, these tags will be a tremendous revenue-generator since they are expected to cover specific product lines that have high volumes, rather than being generic RFID tags.
Recent analysis from Frost & Sullivan of the world RFID market found earned revenues of $2.10B in 2005, with estimates for it to nearly triple by 2008.
These RFID tags could have limited initial applications, but will be deployed in large markets. Analysts said Europe is expected to incorporate these tags only in the high-volume DVD/CD cases and drug markets at the outset.
Also, the U.S. Food and Drug Administration's (FDA) mandating the inclusion of RFID in its battle against counterfeit drugs will make the U.S. health care industry a happy hunting ground for the RFID investment community.
U.S. spending on RFID is likely to grow by 120% by fiscal year 2009, with applications such as postage stamps, smart tickets and bar codes being the primary users of 5-cent tags.
Industry experts expect the market for item-level tagging to exceed $500B by 2012, setting the stage for large-scale venture capital funding.
Analysts said venture capital activity is likely to heat up between 2006 and 2010, since this is when the emerging RFID market is expected to burgeon. Investment companies and venture capitalists that enter the market at this time will have an early-mover advantage and garner considerable profits from this highly lucrative and promising technology.
"RFID markets all over the world are witnessing extensive pilots and initial deployments," said Frost & Sullivan financial analyst Janani Sankaran. "Falling prices of RFID equipment, growing industry support to RFID-based supply chain management applications and increasing end-user awareness is expected to catalyze exponential revenue growth."
To keep pace with market growth, analysts said RFID companies will have to constantly upgrade or invent technologies, necessitating considerable investments in R&D. While small companies do not have the resources to match the latest technological offerings, some others may compromise on quality in their haste to take advantage of the immense potential and popularity of a new technology.
Ensuring that software developers and manufacturers produce quality software at optimum costs can solve the issue of unreliability. Analysts said companies can also achieve greater cost and process efficiencies by enhancing their visibility along the supply chain.
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"RFID technology has immense potential in supply chain applications, mainly due to widespread standardization," said Sankaran. "This increasing emphasis on standards necessitates improved technology, which, in turn, requires high venture capital."
Source: Frost & Sullivan.