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Baird Sees a Turning Tide in the RFID Market

October's , the publication from wealth and asset management firm Baird, was refreshingly optimistic about signs that the tide might finally be turning in the RFID market. The cautiousness of the report's language notwithstanding, its tone suggested one of the more positive market assessments in recent memory.
Oct 29, 2007This article was originally published by RFID Update.

October 29, 2007—October's RFID Monthly, the publication from wealth and asset management firm Robert W. Baird & Co., was refreshingly optimistic about signs that the tide might finally be turning in the RFID market. The cautiousness of the report's language notwithstanding, its tone suggested one of the more positive market assessments in recent memory.

"Industry contacts suggest meaningful business opportunities are finally emerging in the RFID market," reads the report. "We are careful not to suggest that the much anticipated 'hockey stick' is apparent, but we are optimistic based on the level of sales and ordering activity in the industry." RFID Update spoke with Reik Read, Baird research analyst and author of RFID Monthly, about his view of the improving market conditions.

"A year ago, RFID vendors were still chasing Wal-Mart business," recalled Read. "And it wasn't really going well."

Much has changed in the interim. The reorientation away from Wal-Mart compliance toward asset tracking and closed loop applications has meant that return on investment, so elusive just a couple years ago, is clearly attainable in a wide variety of applications.

Performance of Gen2 technology has improved markedly. "RFID reader quality is very good, and there have been great strides in terms of using the technology around metal and liquids," commented Read. "In general, the end user community has no question in their minds that RFID works." (This wasn't always the case.)

Baird also cites the deployment of new pilots and the expansion of existing ones. From RFID Monthly: "We are particularly encouraged to hear that pilots are expanding and leading to increased opportunity. Pilots sold 6-12 months ago are leading to larger orders, and lots of new pilots are beginning on a regular basis. We spoke to several Fortune 300 size companies that have begun 10-15 small pilots each, and we expect such pilots will likely lead to expansion in the next 12-18 months as hard data yield more definitive business case results."

Technology stalwarts are engaging the market, both with product and with an increased visibility at industry events. Baird considered it significant that Microsoft, Intel, and HP opened the recent EPC Connection show in Chicago.

If all of that anecdotal evidence weren't convincing enough, the hard numbers clearly reveal a growing market. Last year, a tag order was considered large if it was 50,000 to 100,000 units. This year, orders for one million tags are increasingly common. Similarly, five to ten readers was a sizeable purchase last year; this year there are orders of 25 to 50 readers.

Baird projects that Gen2 hardware sales will double this year over last, then grow 75 to 100 percent again in 2008, reaching $125 to $150 million. The company pegs software and services revenue at about the same figure.

Read noted that while such growth is strong, it should be evaluated against the fact that the market is very small yet. "The growth is coming off a small base, so don't read too much into those figures." Furthermore, for RFID vendors to truly prosper, this adoption must be sustained and even accelerated. "Vendors are saying, 'We don't want to see good growth just this year. We want to see another good growth rate next year, and the next year, and the next.'"

By way of comparison, for the RFID market to join the ranks of past emerging technology markets that saw explosive, hockey-stick adoption, revenue growth would have to hit 100 percent per quarter. RFID is likely still a few years away from that. "Predicting when that will happen is an extremely difficult proposition," cautioned Read.

While none of the aforementioned positive indicators by themselves will catalyze such exponential growth, taken together they represent robust forward movement. "Frankly, I'm far more encouraged that we've seen a lot of little things go in the right direction. I tend to be a believer that that's what this industry really needs," said Read.

"We haven't crossed the chasm yet, but the other side doesn't seem that far away."
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