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VDC: RFID Growth to Slow Sharply, But No Contraction

Market research firm VDC Research Group sharply reduced its RFID industry growth forecasts. VDC predicts worldwide RFID sales will grow 9.2 percent this year to $4.04 billion, after previously forecasting 30.5 percent growth. A rebound isn't expected before 2011.
Jan 12, 2009This article was originally published by RFID Update.

January 12, 2009—Longtime industry research and consulting firm VDC Research Group reduced its RFID sales projections by nearly $1 billion for 2009 in a market update webinar last Friday, but emphasized the market will grow. VDC is predicting 2009 RFID revenues to grow no more than 9.2 percent over 2008 levels to $4.04 billion, nearly $1 billion less than its previous forecast of 30.5 percent growth and a $5 billion market. Annual market growth is not projected to reach 20 percent or higher before 2011.

"We absolutely believe the economic environment we're in will impact RFID," said VDC executive vice president Chris Rezendes. "Point blank: RFID markets will not grow even 10 percent this year."

"There is still going to be growth. It is going to slow significantly, but there isn't going to be a contraction," said Drew Nathanson, VDC's director of research operations.

Robust growth rates could return in 2011 or 2012. VDC now predicts the compound annual growth rate (CAGR) for worldwide RFID sales from 2007 to 2012 will be 23.2 percent, down from its previous forecast of 32.7 percent.

VDC has tracked the RFID industry since 1985 and said the industry is much better positioned than it was for previous recessions. Nathanson noted the 2000-01 recession was caused in part when the tech bubble burst, but that most RFID firms today have much stronger balance sheets and business plans than many tech firms did in 2000. RFID technology has been proven to save time, improve efficiency and reduce costs in multiple business processes, which will provide some insulation during the economic downturn.

"Today RFID is a proven technology, it is not an emerging technology," Rezendes said. "There will be a role for RFID in all of its current markets, but RFID is not yet ubiquitous in any of them."

Some of the strongest immediate growth for RFID sales will be in access control and IT asset tracking systems, VDC predicts. The firm expects a significant drop in sales to the automotive industry, and for slow adoption in pharmaceutical, where two-dimensional (2D) bar code technology is increasingly being favored for potential RFID applications.

The slowdown in manufacturing, pharmaceutical and other markets that many RFID providers have positioned themselves to pursue could lead to realignment within the industry. VDC expects merger and acquisition activity to accelerate.

"We probably have some overcapacity from an RFID production standpoint, and from a technology development standpoint," said Rezendes. "Many companies are well positioned for this downturn, so they are also well positioned to make strategic acquisitions. We also expect to see more, deeper partnerships between technology providers."

VDC left its audience, which included RFID company executives and financiers who invest in the industry, with some strategic advice for surviving during the current low-growth period. Key tactics include sharpening communications to prospects to include specific information about value opportunities, avoiding the exaggeration of RFID technical and cost-saving abilities, making continued investments in core intellectual property, and improving the ability to integrate with solution components closest to the company's own products. Rezendes said prospects will respond positively to vendors who can meet multiple needs, rather than supplying specific technology components.

"There is an acute need for total solutions providers," he said.

An archived replay of the webinar is available here, but if you want to attend live, VDC will be hosting it again tomorrow at 2pm ET. Sign up free here.

VDC's webinar was the clearest public communication from an RFID research or analyst firm on how current macroeconomic conditions will impact the industry. As recently as November many RFID analysts were upbeat about the industry outlook (see Economic Meltdown Effect on RFID: Not Now, Not Ever? and Tight Capital Could Squeeze Firms Out of RFID Industry).
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