Big RFID Deals and Their Meaning

By Mark Roberti

Do Impinj's purchase of Intel's RFID reader chip business, and Checkpoint's acquisition of OATSystems, indicate we're about to see a wave of consolidation within the RFID industry?

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Two of the more significant deals in the radio frequency identification industry occurred within a couple of weeks of one another, raising the question: What’s up?

First, in late June, Checkpoint Systems announced it was acquiring RFID middleware and applications provider OATSystems (see Checkpoint Systems Acquires RFID Software Company OATSystems and Checkpoint Systems Deems OAT Acquisition Strategic). Then, just 16 days later, Impinj, a leading provider of RFID chips, tags and interrogators, announced it had acquired the RFID reader chip business of heavyweight Intel (see Impinj Acquires Intel’s UHF RFID Reader Chip Operation).




The Checkpoint-OAT deal immediately spurred pundits to claim this was the start of a massive wave of consolidation in the RFID industry. The most common theory—which has been put forth after previous deals—is that RFID has not taken off as quickly as many had predicted a few years ago (yes, including me), and that startups are now hurting for cash. The companies can’t raise additional financing, many purport, and will therefore put them up for sale.

There is some truth to this theory. The market for passive ultrahigh-frequency (UHF) systems based on the Electronic Product Code (EPC) standard didn’t take off as quickly as expected after Wal-Mart and others announced they were adopting the technology. The market for high-frequency (HF) ticketing, payment, access control and other applications is growing briskly, and the market for active RFID systems has grown faster than anyone predicted a few years ago.

So if there is consolidation, it’s likely to be primarily in the passive UHF arena. It’s probably fair to say Intel expected sales of its UHF reader chip to pick up faster than they have, and so the semiconductor giant decided to focus on its core businesses. And OAT probably realized revenues would not grow fast enough to enable it to build out an infrastructure to support its big customers globally, so it opted to be purchased by a larger technology company with that infrastructure in place.

But I don’t think these two deals are the start of a major wave of acquisitions, and here’s why: There has to be a significant number of companies desperate for cash, and there have to be enough other companies eager to get into the RFID market or expand their current position—and there have to be good strategic marriages. Those conditions simply don’t exist at present. There are certainly some companies in need of cash, and there are clearly firms willing to expand their market presence, but I don’t think there are a large enough number in either category.

Now, I’m not privy to the books of RFID companies, of course, nor do I sit on the boards of large technology companies that might want to acquire a startup if the price were right. I base my views entirely on what I see happening in the market.

Some companies, such as TrueDemand, have moved out of RFID to focus on other areas successfully, while some, such as Retail Solutions (formerly T3Ci), have gone into new markets in addition to RFID. And some RFID startups are doing very well, indeed—just consider Impinj. It’s a young firm that recently sold off its volatile memory business to focus on RFID, and it purchased Intel’s UHF reader chip business because it wanted to expand its position in the RFID market.

“We see things starting to heat up,” Bill Colleran, Impinj’s CEO and president, told me. “Last quarter, saw a lot of activity, driven by closed-loop applications and item-level trending. We see things picking up significantly, and are optimistic about the way the RFID market is trending.”

I’m also not sure there are a lot of good strategic pairings out there. Big hardware companies can always buy up smaller companies that have either some IP or technology that’s valuable, and/or a solid customer base. And big integrators can acquire smaller integrators to expand their RFID capabilities. But all of the big software companies already have RFID software products, so they might not have an interest in startups. As such, those firms will need to change strategies—or they will go out of business.

I do think we will continue to see sporadic deals like Checkpoint’s acquisition of OAT and Impinj’s purchase of Intel’s RFID chip business. These will be smart and strategic and occasionally opportunistic (picking up a cheap asset to add to the bottom line). But I don’t expect a large wave of deals in the coming months. This is good for the RFID industry, because it makes key technology providers stronger.

I know some pundits will claim Intel getting out of the RFID reader chip business and OAT putting itself up for sale are signs the UHF market is struggling, but it’s also worth noting that Checkpoint and Impinj are increasing their investment in that very same market. And even Intel showed how optimistic it is about the market by taking a stake in Impinj, rather than cash, for its reader chip business. Just depends on whether you prefer to see the glass as half empty or half full.

Mark Roberti is the founder and editor of RFID Journal. If you would like to comment on this article, click on the link below. To read more of Mark’s opinions, visit the RFID Journal Blog or click here.