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RFID Market Performing Unevenly During Recession

The latest market data from VDC Research finds the recession is dragging down the RFID market, with vendors and end users differing on when the industry recovery will begin. The commercial services vertical is a bright spot for RFID sales, which are expected to top $4 billion worldwide this year.
Jul 14, 2009This article was originally published by RFID Update.

July 14, 2009—The economy is severely slowing RFID growth but not stopping it, according to new market data from VDC Research Group. The Boston-based market research and consulting company forecasts worldwide RFID sales will grow between 10 and 11 percent this year to more than $4 billion. Hardware sales will account for approximately half of the total, $2.23 billion, a 7 percent increase over the $2.11 billion sold in 2008.

The forecasts come from VDC's major annual study of the RFID market, and include data from interviews with 670 RFID users, prospects and providers. Previous VDC forecasts that were made before the worldwide economic slowdown began last fall had predicted the RFID market would grow at least 30 percent annually for several years. Now the firm doesn't expect sales growth to return to that level before 2012.

"The big story in the RFID market is the recession. Overall budgets are way down for IT spending, particularly for RFID," Drew Nathanson, VDC's director of research operations told RFID Update. "RFID budgets are down both at new and existing users. RFID suppliers are saying they expect sales to rebound after Q4 of this year, but end users aren't so rosy. They're saying their RFID spending won't pick up until two quarters after the recession ends. Right now, unless an RFID project has a six- to nine-month ROI and it provides additional benefits, it is very difficult to get it funded."

VDC found several bright spots where spending is strong, and noted the high-profile Gen2-standard UHF segment is struggling. Current high-growth RFID markets include commercial services (led by the library and textile segments), government, shop floor (including tool tracking), oil & gas and retail.

"Commercial services is the shining star right now. The ROI is so compelling for many of these applications. The solutions are very efficient, and are coming down in price," said Nathanson.

There have been many recent announcements of RTLS and other RFID implementations in medical facilities, but VDC does not believe the healthcare market is as large or will grow as quickly as the current activity level may suggest.

"Healthcare resembles the beginnings of the EPC market, where there was a lot of attention but not a lot of volume. RTLS installations are certainly very exciting, but they are low volume," said Nathanson. "Healthcare is still a hard market to penetrate, and we're seeing signs that end users are going to pause on RFID implementations while they try to find ways to leverage data across the enterprise."

The economic slowdown has not changed VDC's outlook on the timetable for RFID adoption in the supply chain -- the firm wasn't expecting wide-scale adoption before 2011 or 2012 anyway. The firm found supply chain technology budgets have been reduced, and many current pilots are not on pace to be commercialized and expanded for two or three years.

Slow supply chain adoption has slowed sales of EPC UHF tags and equipment. "The UHF EPC market tanked a little bit this year, going from $135 million in sales in 2008 to a projected $129 million this year," said Nathanson. The segment is expected to rebound and reach 30 percent annual growth rates in 2012 or 2013. Falling tag prices are also slowing revenue growth in the segment, and VDC expects end user prices for finished passive UHF tags to fall to about 11 cents by 2013, which Nathanson said is a significant drop.

"Tag prices are declining about 5 percent annually across the board. EPC UHF prices could fall 12 percent in the next couple years, which is huge," he said.

VDC Research announced its updated hardware forecasts last week and is releasing its software and services research to clients this week. In January the firm issued an update to its 2008 study that predicted the RFID market would grow 9.2 percent this year (see VDC: RFID Growth to Slow Sharply, But No Contraction). Two weeks ago IDTechEx, a competing RFID market research firm, released its forecast for the global market, which pegged sales approximately $1.5 billion higher than VDC (see Public Sector Spending Driving RFID Markets). Earlier today, Frost & Sullivan, another market research firm, released a report on the Asia-Pacific market for RFID readers, and last week reported on middleware sales in the region.
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