A passive RFID tag is primarily an integrated circuit (silicon chip) joined to an antenna, and NXP Semiconductors—a spin-off of Royal Philips Electronics—is one of the world’s largest RFID chipmakers. Steve Owen is NXP’s global VP for identification sales and marketing, and Tony Sabetti recently became the firm’s new senior director of identification for business development, strategy and marketing, for North America (Sabetti previously worked at major RFID hardware manufacturers Sirit and Texas Instruments). Owen and Sabetti recently spoke with RFID Journal regarding the state of the RFID industry.
RFID Journal: How has the recession impacted NXP’s RFID business?
Steve Owen: From a global perspective, there has been a slow-down that we’ve seen, in terms of new projects coming to market. This is the case in all industries, but particularly RFID has been impacted by [decreased] IT spending. What we see in traditional areas—for instance, in library applications and those types of businesses that are already established [users of radio frequency identification technology], and where the return on investment is clear—is that they are actually seeing some growth and an increase in number of units [of RFID chips] shipped.
Tony Sabetti: [In North America], we have heard from end customers that they have elected to postpone projects due to the financial situation that they find themselves in. Though, to Steve’s point, when we have an existing installation, a traditional area with a well-documented return on investment in RFID, those continue to move along steadily. It really is the newer growth areas where we see the larger impact.
RFID Journal: Do you think you’ve reached the bottom? Is new business starting to pick up?
Sabetti: In the U.S., we’ve seen projects tied to government projects that are starting to come back to life, and we’ve seen a renewed confidence in the financial sector to move forward with projects.
Owen: I think we reached the bottom in terms of reduction in sales in the industry. We are starting to see a pick-up, but I do not get a sense of massive growth. It’s reasonable growth, but not massive. On the global level, China is where we are seeing new projects coming to life that have been dormant for some time.
RFID Journal: Last year, two separate research teams reverse-engineered NXP’s Mifare Classic chip, used in many transit fare applications, and were able to uncover the security algorithm it uses. NXP subsequently introduced the Mifare Plus, a chip that supports more robust data security protocols than the Classic. How is it being received?
Sabetti: First, I want to respond to something you just said. NXP already had several [chips] on the market with more robust security than the Classic, and that are used by some transit agencies—the Mifare DESFire is a good example of this. And the Mifare Plus was already on the drawing board [when the Classic chip security was reverse-engineered], so we were able to bring that out—albeit on a slightly accelerated schedule.
Our whole strategy in providing security is [to give] a roadmap that continues to increase the complex cryptography that is used in the devices.
Owen: What we found in the course of last year is that there was lots of discussion with transport authorities and the universities that were involved in [breaking the Classis security]. We found that you really have to look at an end-to-end system and its multiple layers of security. Every transport authority [using Mifare Classic] has come out and said they were satisfied with the security they’ve got. Which is confirmation that their own security is a big part of the solution.
But in response to your question, in the course of the last year, we actually released four new products: the Mifare Plus, the Ultralight, the DESFire and the SmartMX P5CD081, with more focus on high security. We continue to see [transit system] project-wins at the same rate as previously. Customers are looking at higher levels of security. There is more engagement over the last 12 months, and the industry is a lot more informed. What it comes back to, however, is the continual challenge of chip cost versus what increase in security you get in exchange.
But in the end, we got a lot of learning from [the Classic security break]—the industry itself did—and we’ve seen growth across that portfolio, and in some ways we’re really positive about the future now.
RFID Journal: Gas prices and a rising concern over carbon emissions have led to a surge in ridership in many mass-transit systems. Are you seeing growing demand from transit agencies for RFID products as a result of this?
Sabetti: I think the answer, generally, is yes. We are working with some younger transit agencies, and we are working with some of the more mature agencies who are looking to refresh what they’re doing with system upgrades. I live in Dallas, which is in the middle of installing two new transit lines—something that, a few years ago, I never thought would happen.
Owen: We see an increase in urban transit systems, and are working with government agencies that are looking for bright alternatives to cars. This started around two years ago. There are three key issues: How do you get people out of their cars? How do you deal with payments? And third, how do you ease those people through the system? And of course, there is the issue of dealing with fraud. So the beauty of contactless technology is that you can prepay, you can reload value onto your card in many locations, and you can speed people through gates. Having less cash is less of a burden for the transport authority, and you can offer discounts [for using the cashless system].
RFID Journal: And you can turn cell phones into fare payment devices, using near-field communication (NFC). In regard to NFC, the technology has so much potential, both in terms of a business and as a tool of convenience for consumers. But so much more cooperation between the stakeholders—the handset makers, the tag makers, the banks—needs to happen first. How can NXP push along the process? What are you doing to get NFC phones into consumers’ hands, to get retailers to embrace the technology, and so forth?
Owen: We helped form the NFC Forum to address that conundrum of how to get businesses to use it. There are already a number of [RFID-enabled] payment cards that can be used for transit applications. But when it comes to how to get that technology into a phone, the challenge is: Who does the client belong to? Is it the bank? Is it the telecommunications company? That’s a part of the business model that needs to be resolved in every situation. What we are doing is bringing the parties together. We engage with telecommunications companies, banks, credit card companies and transit agencies. There have been more than 200 NFC trials taking place—with many of them involving the use of the technology for transit applications. What I’ve seen is that a number of these banks and telecommunications companies now are taking a pragmatic view that we have to move this thing forward and solve some of those problems later, and just first see what works.
So it’s a shift from saying, “I don’t do anything and I’m happy” toward seeing what the issues are and then working out how to deal with them later. I’m pretty optimistic now—based on discussions we’re having with other stakeholders—about a timeline with rollouts of more than just trials, starting around mid-2010, with more serious rollouts in 2011. And that’s actually quite a short timeframe.
Toward the end of this year, a number of companies will announce new handset models with NFC. Nokia recently announced plans to include NFC functionality in many of their handset models. That is a major shift and a signal to other handset manufacturers that they need to finish their design program. So we are engaged. There are some business problems to be solved, but they will be solved deployment by deployment, major city by major city.
RFID Journal: It seems like NFC technology and pilot tests are more advanced in the European market, compared to North America. Is that true?
Sabetti: That situation is slightly ironic. True, there are more [NFC-enabled] handsets in Europe. But in the U.S., more RFID-enabled payment cards have been issued to consumers—and as a result, there are more payment terminals that accept these cards. And those payment terminals are NFC-ready.
But to Steve’s point, there are some challenges in front of us to get this widely deployed. [Deployments] will probably start city by city, to region by region here as well. Plus, in North America, there is a business complication based on how telecoms get phones to customers. There is an incentive for the carriers to subsidize those phones. Because of this, they dictate the features and functionality, and that is a very different set-up than what is happening in Europe and other parts of the world. And because of that, the phones in the U.S. are different than those in other places. Because of this, it is more difficult to get NFC functionality in U.S. handsets—we have to speak with the phone manufacturers, the carriers and all parts of the NFC ecosystem. The business case for NFC needs to be understood by all of the players, and that creates an iterative process where, through the NFC Forum, we are trying to optimize the business relationships and discussions to ensure NFC gets integrated into US handsets. On the plus side, we see a lot of activity among handset makers with plans to put NFC technology in their phones. I think it would be feasible to see North American really jump out in front of the rest of the world.
RFID Journal: In terms of where the handset makers are adding NFC functionality, are you seeing more activity in the most high-end, high-function phones, with Web connectivity, such as the BlackBerry or iPhone, or is it across their entire phone portfolios?
Sabetti: It is relatively even, though most manufacturers are putting more of their R&D dollars into smart phones, so there is a bias. But overall, it is fairly even.
RFID Journal: What are you seeing in terms of UHF chips? Is that side of your business changing?
Sabetti: It’s the same old story, because track and trace continues to be interesting in retail environments, where you have high-value goods such as fashion, footwear and media [movies and music]. We are starting to see some customization applied to those applications, such as combining RFID with EAS [electronic article surveillance] functionality, [for anti-theft applications]. And in the perishable foods space, we are seeing a lot of interest in sensor integration, and also in high-memory solutions as well.
RFID Journal: How does that inform your product development cycle, as well as what functionality you cook into the chips you create?
Sabetti: We see our UHF family having a broader and broader feature set all the time. I think we will still have simple [low-memory, basic Gen 2] tags that will remain interesting to the DOD or Wal-Mart, but some of the higher-function tags might appeal to some of the smaller players.
RFID Journal: Is there increasing demand for high-memory chips for passive UHF tags? The growth seems to still be in simple UHF tags.
Sabetti: At the moment, we have a lot of irons in the fire, but many are under NDAs. I can tell you that we have two or three projects that are active at any one time in North America, where end users are asking us to add functionality into the chips. So while I would agree with you that there is a lot of interest in just plain 96-bit EPC tags, there are a growing number of customers who want more and more functionality.
RFID Journal: How does NXP decide what functions to add to its chips, and when to add them?
Owen: We ask the question ourselves regularly. The key point is to engage carefully with customers to try to understand the specifications required, and fine-tune the R&D process. There is strong demand for simple tags, but sometimes we get thrown by demand for high-function products as well.
RFID Journal: There is a lot of talk in the industry regarding the need for security in EPC tags. How will that work? How will we get a more secure EPC tag, and from where will the impetus for that come?
Sabetti: We believe it comes in product authentication. Let’s say a shoe manufacturer wanted to include a tag with cryptography in order to ensure that a shoe is authentic. We already have the technology to do that—look at the security in the Mifare Plus chip. It’s a matter of putting that functionality on a UHF chip.
RFID Journal: So why not add it?
Owen: You need lead customers and lead projects that are going to deliver the scale you need to justify adding it. And that’s true for any supplier.
RFID Journal: What about printable RFID chip technology? Does NXP have a research arm in this area?
Owen: We have a number of partners researching this. The issue is, how do you mass-produce and make it reliable in terms of scalability? That’s one of the challenges. We don’t see how to scale such technology and make it affordable in massive quantities. We’re not saying it won’t happen, but at the moment, it’s hard to see how this is a good investment for our customers. I’m sure it will get solved at some point, but we’re not there yet.