Zeroing In on the Closed-Loop

Datalogic brings access to markets outside the United States (70 percent of EMS’s revenue comes from sales in Europe and Asia). For Datalogic, EMS’s RFID abilities expand the parent company’s data-collection capabilities. Analysts maintain that the two companies are likely to combine their expertise to create dual bar code-RFID handheld readers in the near future.

The company makes 13.56 MHz tags in a variety of form factors

Even so, to really capitalize on its RFID experience, EMS cannot just rely on the reach and the advantages of its far larger parent. “EMS will have to raise awareness of its brand,” says VDC’s Liard. “It is not enough to be a Datalogic company.”

EMS still develops 400 kHz systems, particularly for closed-loop manufacturing operations, because the frequency works well in environments that contain large amounts of metal or liquids, such as cutting fluids and oil. EMS says that many automotive companies have used its HS product line to control their manufacturing processes.

But the vast majority of the RFID systems the company sells operate at 13.56 MHz; roughly 90 percent of EMS 13.56 MHz tags are made with chips from Philips Semiconductor. EMS uses those chips to build a wide range of tags for its customers, and production quantities can range from 10,000 to millions, according to Mattioli. Analysts believe that sales of those tags bring in a big share of the company’s annual revenues.

EMS considers itself a reader manufacturer that designs custom tags when required. “We are a reader company and not in the tag-manufacturing business,” says Mattioli. “We develop only very specialized tags aimed at specific segments of the market.”

But the high prices that it charges for those tags represent around half of the company’s earnings, according to analysts. “We estimate that around half of EMS’s revenues come from the sale of tags despite the relatively small volumes, but that is just a factor of the current cost of the tag transponders,” says VDC’s Liard. “It’s the nature of the beast.”

EMS says that its revenue last year was around $15 million, up 15 percent to 20 percent on revenue in 2002; as part of Datalogic, the company does not have to report its earnings separately.

Currently, around 40 percent of EMS’s revenue comes from reader sales, according to VDC estimates. The remaining revenue (approximately 10 percent) is made up from software sales and services.

“We do not sell software in terms of middleware. There is standard software that comes with our product (firmware), and we provide some Active X objects and examples for companies/integrators to develop applications on top of our products,” says Suresh Palliparambil, director of marketing at EMS. “We offer service in the application-development area: When we come across customers that need help in solving their application needs, we provide the consulting that will help them with a successful implementation. We do not take on general consulting projects but engage in ones where we are confident that EMS products can solve the needs of the application. The service is sold on a case-by-case basis, depending on the scope of the project.”

There is no doubt that the reader market is a lucrative business, but software and services are set also set for growth, say analysts. “There are absolutely good margins in readers. A lot of the sticker shock with RFID comes with the price of readers,” says VDC’s Liard. “Reader prices will come down over time, but as more and more readers are deployed, there is going to be a real need and shift toward software and services.”