Sep 30, 2002Sept. 30, 2002 - One reason RFID technology hasn't taken off faster is because semiconductor companies could make more money focusing on the established markets for microchips, such as personal computers, handheld computer and mobile phones. But those markets are slowing, and RFID is reaching a new level of maturity, with the first global standard about to be introduced next year. Philips Semiconductors, for one, is now taking the RFID market very seriously.
"Our vision is of a totally connected world in which we at Philips provide silicon for all the locks and keys to that virtual (networked) world," says Katja Kienzl, manager of segment marketing for tags and labels at Philips. "That means we want to provide technology necessary for either people or objects to get access to networks."
Philips doesn't actually make RFID transponders. Instead, the company makes the microchips that act as the brains of smart labels and tags. It works with established players, such as Rafsec Oy of Finland, Omron Europe in the U.K., and Escort Memory Systems of the United States, which produce the RFID tag or finished label.
In May, Philips became the first semiconductor company to announce plans to produce microchips based on drafts for the GTag standard. GTag, which stands for Global Tag, is an initiative launched by EAN international and Uniform Code Council, two nonprofit organizations that represent users of bar code and RFID technology. Many companies have been reluctant to invest in proprietary RFID systems for fear their tags will be incompatible with supply chain partners or would quickly become obsolete.
"GTag is giving customers the confidence that what they invest in now will be the right choice," says Kienzl. "They can invest now knowing that everything that comes out in the future will be backward compatible with what they already have. And with standardization, they no longer have to rely on one supplier."
Philips is also a member of the Auto-ID Center, which is developing its own specifications for reading electronic product codes (EPCs) off of RFID tags and labels. Kienzl sees no conflict between supporting the two efforts. "Both initiatives are fully in line with our strategy to support globally standardized platforms," she says. "UCC/EAN are a major contributor to the work of the Auto-ID Center, and they are taking care to ensure that the EPC and ISO 18000/GTag will have the best fit."
Philips Semiconductors is a $4.4 billion company, and ranks ninth among the world's semiconductor companies (Intel Corp. is by far the largest with $23 billion in revenue.) Philips makes 62 million integrated circuits every day. And it's a leader in producing microchips for different RIFD applications.
For instance, the company ranked third in chip cards in 2001, according to Gartner Dataquest, with $195 million in revenue. Infineon was number one with $450.9 million and STMicroelectronics was second with $269.9 million. Philips makes chips for low-frequency (125 KHz) applications, such as animal tracking; for high-frequency (13.56 MHz) applications, such as tracking library books and other rental items; and for ultra-high frequency (900 MHz) and microwave (2.45 GHz) applications, such as tracking assets in the supply chain.
Since different tags and labels are needed for many applications, Philips leaves the development of these products to its partners. But its strategy is to provide chips than can be used in RFID tags for any high-volume application, whether its tracking cows or jet engine parts.
Ed Gonsalves, business development manager for Identification at Philips, says it is unlikely that anyone will produce a 5- or 10-cent chip in the near future. But he says the supply chain for labels will be compressed through consolidation and that will help bring down the price of the finished tags and labels.
Right now, the integrated circuit makers (Philips and others) supply chips to a company that attaches the antenna to the chip and puts it on a substrate to make an RFID inlet. That company then sells the inlet to a company that converts it into a label or integrates it with packaging. Each company builds in margin as the product is enhanced, which drives up the cost of the tag. Eventually, Gonsalves sees Philips and others selling to companies that will produced a finished label in a high-speed process that will reduce the cost.
Bringing down the cost of the chip is one of the keys to widespread adoption of the technology. Kienzl says that the cost of the tags will come down over time, as demand increases. "Semiconductor companies, as every company, need to make money," she says. "Philips is very well prepared to take all required steps to reduce the overall product cost."
The company has been working to reduce the cost of the chips by improving the chip design, the manufacturing process and the assembly processes. "The moment the market is ready to consume billions of tags, we will be there at the price level envisaged by the Auto-ID Center," she says.
It may be a while before the market is consuming billions of tags, but there are markets eager to buy tags even at today's prices (around $1 for a finished label, in most cases). Kienzl says one of the attractive markets right now is for tracking rental items. And the biggest market of all, of course, is tracking goods in the supply chain.
The rental market includes video rentals, libraries, laundry business and companies that provide pallets and reusable containers for moving produce and other goods. In the libraries arena, Philips competes with 3M, Checkpoint Systems, and others. But Philips has won some major deals. The National Library Board of Singapore is using 13.56 MHz RFID tags with Philips chips to track more than one million books in the country's national library and 66 regional and community libraries.
"In Singapore, they used to close the national library for two days every quarter to inventory the books," says Kienzl. "Now they close one day a year. Other libraries don't even take inventory because it is too expensive."
The rental market holds great promise. But Kienzl says the biggest potential market is supply chain management and logistics. Currently, most supply chain applications are done in a closed-loop environment, where one company holds the item from beginning to end. Philips supplied chips to Escort Management Systems, which set up a system for Toyota in South Africa that uses RFID to optimize the flow of cars through a production facility.
But GTag has the potential to open new supply chain opportunities in an open loop system, where tags on products, cases or pallets can be read as they move through the supply chain, from one company to another.
"Once you have companies adopting systems that support global standards, you are talking about the need for billions of chips, not millions," says Kienzl. "You have to have players in the market that can produce that kind of volume and maintain the highest quality standards. This is where we feel our experience comes in. We can give a commitment to provide whatever volume a customer needs."
As important as it is to have a big semiconductor company making chips that support global standards, RFID is not going to take off until there are a host of other companies providing the other elements of a complete tracking system. After all, the chips alone are useless. You need companies to fashion them into tags and labels for specific applications, readers to read the tags, software to manage information from tags and pass it on to existing business applications and integrators to make the whole thing work.
"We are committed to driving the infrastructure side," says Kienzl. "We have devised a strategy where we support partners along the value chain. We want to ensure complete networks are available. If the customer wants to track and trace reusable boxes, we have to make sure there is a network of suppliers to provide appropriate readers and system software as well as the tags and labels."
Philips has created a global customer application support group made up of RFID experts who provide technical assistance for product design, as well as help with application specific issues, to Philips' partners. "With this partner network," Kienzl says, "we are continuously exchanging market information, such as new opportunities coming up, to ensure that complete networks of component providers are prepared for any new application."