RFID - Read My Chips!.pdf

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EQUITY RESEARCH
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RFID: READ MY CHIPS!
APRIL 2004
Brian Gesuale
Vice President
Senior Research Analyst
612 303-6450
brian.a.gesuale@pjc.com
Parag Agarwal
Research Analyst
612 303-6457
parag.a.agarwal@pjc.com
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April 2004
Executive Summary ..................................................................................................... 1
RFID: Today's Reality ................................................................................................. 6
RFID: Future Promises .................................................................................................. 7
Twentieth Century RFID: Tracing RFID Lineage ........................................................... 8
Setting The Compass To True North—A Perspective For RFID Investors .......................... 9
Piper Jaffray RFID Adoption Model ...................................................................... 10
Near-Term Supply & Demand Equilibrium? ................................................................ 12
Six Trends Pushing The Adoption Accelerators ............................................................. 12
The Seeds Of Adoption ............................................................................................... 13
DoD Gets Tagged ............................................................................................... 13
The Wal-Mart Effect ........................................................................................... 13
Adoption Inhibitors ..................................................................................................... 14
Complementary Forces ......................................................................................... 15
RFID Anatomy ........................................................................................................... 16
Tags-Nanocomputers Of RFID ............................................................................. 17
Readers—Gatekeepers Of The Network ................................................................ 19
What's In A Smart Label ...................................................................................... 21
Printers—Making Labels Smart ............................................................................ 22
Frequency Spectrum—Being On The Same Wavelength ......................................... 22
Fine-Tuning The RFID Frequency Selection .................................................................. 24
Critical RFID Performance Metrics ............................................................................. 25
The ART Of Performance Zen .............................................................................. 26
Notional RFID Example ...................................................................................... 27
The RFID Market ....................................................................................................... 28
Powerful Global Trends Pulling RFID To The Market ............................................ 28
RFID Goes Deep Into Many Vertical Markets ........................................................ 30
The Government Wave Of RFID Is Here .............................................................. 31
Retail—A Look At The Shot Heard Around The World .......................................... 34
Life Sciences—A Patient RFID Wave Is Coming ..................................................... 35
Sidebar: FDA Mandates .............................................................................................. 35
Transportation And Logistics-Riding The RFID Wave .................................................. 36
Sidebar: Ford And Escort Memory Systems ................................................................. 37
RFID Versus The Incumbent Auto-ID Solutions ............................................................. 38
RFID Value Proposition (Cost And Benefits) ................................................................. 40
RFID: The Next Big Wave Of Technology Spending .................................................... 41
Market Size ......................................................................................................... 41
Segmenting The RFID Vendor Field ...................................................................... 42
Tags—The Silicon Razor Blades Of RFID ............................................................. 44
Readers ............................................................................................................... 45
Printers ............................................................................................................... 46
Vertical Markets Analysis ........................................................................................... 47
Government Markets ........................................................................................... 48
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Retail .................................................................................................................. 50
Manufacturers ..................................................................................................... 52
Health Care ........................................................................................................ 54
Not A Question Of If But When ............................................................................ 56
Adoption Timeline ............................................................................................... 56
Adoption Factors .................................................................................................. 58
EPC Network Architecture .......................................................................................... 61
Electronic Product Code (EPC) .............................................................................. 61
EPC Tags And Readers ......................................................................................... 61
Object Name Service (ONS) ................................................................................ 62
Physical Markup Language (PML) ........................................................................ 62
Savant ................................................................................................................. 62
Tuning Into Other Hot Topics ..................................................................................... 64
Remember Metcalfe ............................................................................................. 64
Consumer Privacy Concerns ................................................................................. 64
Corporate Data Security ....................................................................................... 65
Cast Studies ............................................................................................................... 66
Fort McPherson ................................................................................................... 66
Procter & Gamble ............................................................................................... 67
McCarran International Airport ............................................................................ 68
DoD's Combat Feeding Program .......................................................................... 69
Central Command ............................................................................................... 70
Company Snapshots ................................................................................................... 71
Biographies ................................................................................................................ 91
Important Research Disclosures ................................................................................... 92
Exhibits
1. Piper Jaffray RFID Market Forecast .......................................................................... 4
2. Piper Jaffray RFID Market Framework ...................................................................... 5
3. The Genesis Of RFID ................................................................................................ 8
4. All That Glitters Is Not Gold ..................................................................................... 9
5. Piper Jaffray RFID Market Framework .................................................................... 10
6. RFID—Disputing The Status Quo ............................................................................ 11
7. Adoption Accelerators ............................................................................................ 12
8. Seeing The DoD Supply Chain In High Definition ................................................... 13
9. Mapping Progress On RFID Standards .................................................................... 14
10. Comparing Alternative Technologies ..................................................................... 15
11. Generic RFID System Example .............................................................................. 16
12. RF Tag Illustration ............................................................................................... 17
13. Active Versus Passive Tags .................................................................................... 18
14. Reader Example ................................................................................................... 19
15. Handheld Reader .................................................................................................. 20
16. PCMCIA Reader ................................................................................................... 20
17. Smart Label With Matrics Tags ............................................................................ 21
18. Smart-Label Printer .............................................................................................. 22
19. Global Frequency Regions .................................................................................... 23
20. RFID System Attributes At Varying Frequencies ...................................................... 23
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April 2004
21. RFID Band Allocations ......................................................................................... 24
22. RFID Frequency Bands ......................................................................................... 25
23. Achieving RFID Performance Zen ......................................................................... 26
24. Tag To Reader Design Considerations—A 30,000 Foot View .................................. 37
25. Notional RFID In A Warehouse Environment ......................................................... 37
26. The Smaller The Computers Get, The Bigger They Become .................................... 28
27. Wal-Mart Turns ................................................................................................... 29
28. Waves Of RFID Adoption ..................................................................................... 30
29. Unplugging The Government RFID Opportunity .................................................... 31
30. DoD Timeline ...................................................................................................... 32
31. Wal-Mart RFID Adoption Timeline ....................................................................... 34
32. Hospital Devices .................................................................................................. 35
33. Dell Sales And Inventory ....................................................................................... 36
34. Barcode Illustration .............................................................................................. 38
35. Optical Character Recognition Example ................................................................ 39
36. Smart Card Illustration ......................................................................................... 39
37. RFID Versus Other Technologies ........................................................................... 40
38. Piper Jaffray U.S. RFID Hardware Market Forecast ............................................... 41
39. RFID Vendor Landscape ........................................................................................ 42
40. RFID Hardware Company Comps ......................................................................... 43
41. Piper Jaffray U.S. RFID Tags Forecast .................................................................... 44
42. Piper Jaffray U.S. RFID Reader Forecast ................................................................ 45
43. Piper Jaffray U.S. RFID Printer Forecast ................................................................. 46
44. RFID Vertical Snapshot—2004 Versus 2009 ........................................................... 47
45. The Government Gets Tagged ............................................................................... 48
46. Piper Jaffray U.S. Government RFID Hardware Market Breakdown ........................ 49
47. RFID Retail Vortex ............................................................................................... 50
48. Piper Jaffray U.S. Retail/CPG RFID Breakdown ..................................................... 51
49. Manufacturing Tunes To RFID For Profit ............................................................... 52
50. Piper Jaffray U.S. Manufacturing Marker Breakdown ............................................ 53
51. RIFD—Health Care RX ........................................................................................ 54
52. Piper Jaffray U.S. Health Care RFID Hardware Breakdown .................................... 55
53. Building Blocks Of The Network Of Things .......................................................... 57
54. Tag Adoption Curve ............................................................................................. 58
55. Standards Timeline ............................................................................................... 59
56. ISO Standards For RFID Air Interface .................................................................... 60
57. EPC Tag Classes ................................................................................................... 61
58. EPC Architecture .................................................................................................. 62
59. EPC Standards For RFID Air Interface .................................................................... 63
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April 2004
Executive Summary
• RFID applications are on the eve of a major hypergrowth cycle. We believe RFID will
be one of the fastest-growing technology segments over the next five years. We are
projecting the market for RFID hardware will reach $5 billion annually by 2009. This
near seven-fold increase in market size implies a CAGR of 41% during our forecast
period. RFID promises to bring investment opportunities in the hardware and software
arena as well as provide substantial incremental business to large systems integrators as
firms begin adopting.
Exhibit 1
($ in Millions)
U .S. Total RFID Hardware Market
6,000
5,000
4,000
3,000
2,000
1,000
0
2004
2005
2006
2007
2008
2009
Source: Piper Jaffray & Co.
• We view RFID as a disruptive technology that will form the foundation of a futuristic
"Internet of Things." While this new technology will initially disrupt many tracking
procedures currently in place, we believe it will ultimately open the door to frictionless
security and humanless item tracking. We expect that RFID will quickly take a large
share of the $7 billion barcode market as well as grow into new markets outside of
traditional barcode strongholds. Early applications for RFID will likely focus on security
and tracking items in a supply chain. Promises of widespread point-of-sale adoption of
RFID are at least four years away, in our view.
• The major components of an RFID system include an encoder, a transponder, a reader,
and software applications. The general RFID process begins with encoding a tag/
transponder with item-specific information. The tag then typically transmits data when it
enters the reader’s range. For passive tags, the reader emits an electromagnetic signal
that evokes the tag/transponder to allow its data to be read generally via ultra-high
frequency. Once the information is read by the reader, the information can be
transmitted, enterprise applications stored, and mined for a variety of information.
• Epic battles for market share are emerging. We expect to see three major categories of
companies vying for market share including start-ups, incumbent supply-chain enablers,
and divisions of large companies. Start-ups will be the only pure-play RFID companies.
Incumbents will generally have a strong heritage with barcode technology and deep
client relationships. Divisions of large companies round out the competitive landscape
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