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IPOs in RFID: If Not Alien, Then Who?

The cancellation of Alien Technology's initial public offering has been greeted by the RFID industry with disappointment. While not altogether surprising given the company's challenging economic fundamentals, industry watchers remained hopeful, excited by the prospect of a publicly-traded RFID company. The question now is: If not Alien, then who?
Aug 13, 2006This article was originally published by RFID Update.

August 13, 2006—The cancellation of Alien Technology's initial public offering has been greeted by the industry with weariness and disappointment. While not altogether surprising given the company's challenging economic fundamentals and the inhospitable macroeconomic climate, industry watchers remained hopeful, excited by the prospect of a publicly-traded pure-play RFID company. The question now is: If Alien is not going to be the first public RFID company, who is?

Gen2 chip supplier Impinj has been vocal about its intention to go public. Like Alien, the fabless semiconductor company competes in the EPC RFID space and is venture funded (see Impinj Lands $26.5M in 4th Round of Funding). With a tight focus on production of the silicon microchips that power RFID tags, the company's business model differs greatly from that of Alien, whose offering portfolio spans inlays, readers, battery-assisted RFID, services, and training. Furthermore, Impinj has a clear plan for long-term profitability, having already been profitable in Q4 of last year. Despite such promise, however, an IPO is still a ways off. It certainly won't be in 2006, and maybe not even 2007. The company will only hint at a timeframe, saying "sometime in the next two years."

ThingMagic is another company that has received IPO speculation. The RFID reader manufacturer was founded by a handful of MIT PhDs and has received around $20 million in venture funding. Despite the speculation, Pete Abell, program director of radio frequency sensor network research at Manufacturing Insights, does not consider a ThingMagic IPO very likely. Instead, he sees the company's relationship with one of its investors -- Cisco -- as significant. Cisco is known for being very acquisitive, historically investing in companies that it ultimately buys. "To me it looks much more likely that ThingMagic would be a Cisco acquisition rather than an IPO play," said Abell.

Both Impinj and ThingMagic participate in the EPC RFID market, which has not realized the optimistic projections common in 2003 and 2004 after Wal-Mart and the US Department of Defense issued their industry-catalyzing RFID mandates. While analysts continue to believe that the market will grow and eventually generate large demand, they have stopped holding their breath. The data from those companies that are already public and active within EPC RFID -- like Symbol, Intermec, and Zebra -- only reinforces the view that the market is too small yet to present an opportunity to Wall Street. Just the other week, Symbol stated during its investor conference call that RFID revenues will not be material in 2006.

Abell therefore concludes that much of the attention on EPC may have been misplaced, especially in light of the RTLS and active RFID market, which makes for a more compelling story. It has grown steadily, albeit quietly, through a combination of vertical focus and ROI-driven offerings. Whereas some EPC RFID companies have undertaken a loss-leader strategy to acquire market share with the expectation of a payoff when large demand materializes, RTLS vendors are already making real money on every sale. Abell likes the space so much, in fact, that he thinks it could be a source of IPO activity. In the RTLS market, says Abell, "there are profitable purchase orders that are real, in verticals that are not aimed at trying to keep the profit of an RFID company to a bare minimum, as in the [EPC] retail world."

Abell cited three RTLS companies in particular: RF Code, WhereNet, and AeroScout. "I will speculate that one of those three RTLS companies will go public in early 2007. Or be acquired. But I suspect IPO." RF Code in particular makes a strong candidate. The recently-won $30 million contract with SYMX, the global provider of medical equipment services and products, is a strong validation of the company's business model and prospects (see yesterday's Active RFID Provider RF Code Nails $30m Deal). Like others in the RTLS space, RF Code has "focused on specific verticals where their technology makes sense and where they can make money."

Another characteristic of the RTLS business model where Abell sees value is that it is full-service. RF Code provides the entire asset-tracking solution, from software and hardware to support and upgrades. "That's the right way to attack a vertical niche, so there's one throat to choke," according to Abell. In the EPC RFID market, by contrast, the hardware, software, and services might all come from different vendors, making it difficult for an end user to know which to turn to for support in the event of a problem.

Thus, while the expectation has long been that RFID vendors in the EPC space would lead the investment opportunities for Wall Street, it appears that RTLS and active RFID vendors could beat them to the punch. Regardless, it will likely be many months at a minimum before the industry can look forward to an IPO from either camp.
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