VDC Research: RFID, Barcode, Retail Automation & Self-Service Market Blog

Intel gets Involved with NFC

Intel has joined the ranks of companies looking to profit from the rapid growth expected in the NFC market during 2012. In Q4 2011, the company announced a partnership with INSIDE Secure, whereby it will license several of INSIDE’s NFC offerings for use in its own products. Today, Intel revealed at CES 2012 that its new Ivy Bridge chipset supports NFC, particularly for payment and e-commerce applications. The company further disclosed that Ivy Bridge will be featured in up to 75 ultrabook devices that are expected to reach the market during 2012.

While ultrabooks may seem an unlikely form factor to support payment and e-commerce applications, these devices could support some potential use cases beyond the typical “tap-to-pay” functionality, such as auto-form population during online shopping as well as authentication of payment credentials in online transactions. Of course, these devices can also support other non-payment applications like pairing, peer-to-peer, info-tainment and access control, which will broaden their appeal to both consumers and enterprises.

Intel’s entry further boosts NFC’s near-term growth prospects. While exponential gains in NFC smartphone sales have been broadly expected in 2012 for some time now, opportunity for growth in other consumer electronics categories has been limited in comparison. Intel’s entry into NFC (and the numerous ultrabook initiatives using Ivy Bridge chips) rapidly expands the potential market for NFC devices in the immediate term. We expect that as Intel further integrates NFC into its offerings, the range of NFC device types and form factors available to end users will continue to expand.

Verifone on Point with Recent Acquisition

Payment terminal solution supplier Verifone continues to pursue accretive growth. On January 3rd, the company completed its acquisition of Point, a leading provider of payment solutions in northern Europe. Point, headquartered in Stockholm, will continue operations under the same name, but as a wholly owned subsidiary of Verifone. Point represents the latest addition to the list of Verifone’s acquisitions over the recent past, which also includes WAY Systems, Gemalto’s payment terminal operations, Hypercom’s non-US operations and Global Bay.

The acquisition of Point has significant strategic importance for Verifone. The transaction rapidly increases Verifone’s presence in EMEA, particularly in Northern Europe, where the company has historically lagged behind the regional share leader, Ingenico. Combined with Verifone’s previous acquisition of Hypercom’s EMEA operations and Gemalto’s payment terminal business, Point further solidifies the company’s status as a serious threat to Ingenico’s market-leading position.

Furthermore, the addition of Point further extends Verifone’s portfolio of alternative payment solutions, including those for supporting NFC contactless payments and mobile commerce. EMEA is a particularly important regional market in the context of NFC payments, as historically stronger availability of NFC-enabled devices and a more robust installed base of contactless infrastructure could drive faster adoption of more advanced NFC solutions in this region.

Where RTLS will be in 2012

2008-2010 were challenging years for RTLS due to economic conditions, unmanaged expectations and the market’s lack of understanding of the solution and all its supporting technologies, its capabilities and its value propositions.  During this timeframe several companies closed down or left the market, budgets plateaued or contracted, and existing deployments saw limited scaling.  Not only did the economic environment create an additional barrier to adoption, but the end user community was becoming more familiar and comfortable with RTLS, yet still struggling to comprehend its value propositions.  Aside from a handful of innovators and early adopters, the end user community for RTLS was simply not ready yet.

The activity experienced in 2011 indicates that this market is beginning to grow in both green- and brown-field accounts … but not in every vertical.  More mature verticals such as Health Care, Government and Transportation/Logistics – accounts and markets that have been cultivated and nurtured for several years – now have a greater understanding of the solution’s value proposition and business models, have become more committed and are increasing investment.  However, adoption in other verticals such as Retail, Manufacturing and Commercial services remained limited or stagnant as the solution continues to be refined for these markets and value propositions and benchmarks are developed and proven.

VDC predicts that 2012, although anticipated to be challenged by continued global economic volatility, will be another year of growth and scale in the RTLS market – more so than 2011.  Trends to watch in 2012 include: broader adoption, convergence, analytics and deeper integration.  RTLS solutions will not only be used to track more objects assets, and people, they will also become more widely deployed throughout the enterprise and its value chains.  As it becomes more broadly deployed, RTLS solutions will increasingly converge with other technologies and systems (i.e., barcode, sensors) as a means to further extend the platform and provide greater visibility.  These systems will generate an unprecedented amount of “true real-time” data and will require advanced analytics and information distribution mechanism to ensure that this business intelligence becomes operational intelligence.  As the information becomes more operational and RTLS continues to be broadly deployed and converged throughout the enterprise and value chain, these systems will need to be deeply integrated in order to maximize value and potential.

All indicators are pointing toward a more prosperous 2012 for the RTLS industry, particularly for those companies that have weathered the storm, pressed ahead with market messaging and nurtured their installed base over the past few years.

Getting Ready For Item-Level RFID: Making the Business Case for Apparel

VDC will be participating in a webcast, hosted by Apparel magazine, with representatives from VICS and Checkpoint on RFID Item-level tracking (ILT) of apparel/fashion in Retail on December 1^st at 2pm EST.  We’ll be providing market intelligence pertaining to sizing and growth of the RFID ILT opportunity in retail and discussing some of the leading/emerging trends that are impacting this rapidly evolving market. 

To register for this webcast, click here

Limited Capacity for Thermal Ribbons to Create Opportunity for Direct Thermal Solutions

Leading suppliers of thermal transfer ribbons are facing raw material constraints, which means they will be raising their prices and placing their largest vendors on allocation by establishing fixed volume commitments for 2011.  Why? Thin film PET suppliers have shifted capacity to meet increased demand for thicker films used in support of more profitable applications, such as the production of flat screen displays.  This shift in capacity, coupled with other raw material price increases (wax, resin, solvents, etc.), has left thermal transfer ribbon converters scrambling to meet the demands of an increasingly price sensitive market. 

While most leading converters believe the raw material capacity issue will be resolved in 2013, many are thinking about what a thermal transfer ribbon shortage might mean for their business.  At VDC, we’ve witnessed a gradual, but persistent migration from thermal transfer to direct thermal printing technology over the past decade, and data collected in Q4 of 2010 suggests that this trend will continue throughout 2011. 
 
 
In 2010, direct thermal and thermal transfer label material shipments were virtually the same; however, now that capacity and raw materials pricing pressures are plaguing the ribbon supply community, we are predicting an accelerated migration, particularly in markets with a high use of wax ribbon printing on common substrates and where today’s direct thermal media represents a viable alternative to thermal transfer.  Which applications?  Those 4X6 compliance shipping labels that have been bread and butter for thermal transfer solution providers for decades will certainly receive increased scrutiny, as will other applications as deploying enterprises take another look at direct thermal media and its capabilities.

Application-specific Deployments Driving Kiosks Market Growth

Suppliers experienced strong growth in kiosk installations across a variety of vertical market segments as end-user enterprises embraced a number of applications targeted at enhancing customer engagement and loyalty. Vendors are expected to derive maximum revenues from product vending kiosks & pedestal kiosk installations in big box retail chains (including department stores and mass merchandisers) and supermarkets/grocery stores.

Kiosk sales into the Government and Healthcare vertical markets tend to be highly application-specific, necessitating partnerships with the ISV community, whose domain expertise and systems integration capabilities enable vendors to adequately address the highly targeted solution specifications posed by end-user organizations.

Deployments are also seen gaining traction within the transportation vertical as airports, bus and rail stations increasingly rely on kiosks to ease congestion, lower employee headcount and reduce costs for rendering basic services. Globally, this segment is expected to register a CAGR over 9%, with suppliers generating over $100 million in kiosk sales to the transportation vertical by 2015.

VDC expects to see those vendors devoting resources toward building systems integration capabilities (in-house or via strategic partnerships) to create a compelling competitive advantage as they address & assuage enterprise end-users’ concerns regarding ROI, compatibility with existing in-store infrastructure, and overall installation/deployment costs.

To learn more about our coverage of the Self-Service Kiosks market, click here.

Competing and Complementary Frequencies Changing Global RFID Landscape

 
Technologies (i.e.: Active, Passive, BAP) and Frequencies for several core solutions are migrating to HF or EPC UHF solutions due to cost efficiencies, increased performance and the desire to have more ubiquitous solutions. For example, LF security/access control and ID systems are migrating to HF 14443, LF animal tracking solutions are competing with HF and EPC UHF systems, and passive EPC is now a viable option for many traditional active UHF and MW systems for asset tracking, location-based services (LBS) and vehicle identification systems. 

Even HF and EPC are beginning to compete in the same markets.  Although most EPC UHF activity pertains to supply chain, shop-floor and asset tracking solutions, innovation, attractive price-performance levels and a highly knowledgeable service community have positioned these solutions to compete in many core HF markets, such as library, laundry, access control, AVI/EVR, animal tracking, authentication and more recently, card-based systems.

Active solutions in the UHF and MW frequency are increasingly being perceived as complementary solutions in many core passive markets due to their performance in harsh RF environments, their ability to receive and transmit data independently, their memory capacities and their longer read ranges.  An example would be the use of passive and active UHF solutions within the supply chain as a means to provide tracking, sensing/monitoring and RTLS.

RFID in 2011: The Vertical Market Story

VDC is in the process of publishing its 2011 RFID vertical market estimates/forecasts for all regions, products, frequencies, verticals and applications.  The following are a few higher-level trends for some of the primary RFID verticals:

• Significant gains were noted within the retail vertical, particularly for in-store and distribution center applications where most product tagging is currently occurring.  As item level tagging grows, RFID will continue to be pushed down the value chain to the point of manufacture since tagging at the source will enable the use of the same tag throughout the value chain, enabling retailers and their channel partners to further leverage the solution’s value.  As tagging moves from the retail store or the DC to the source of manufacture, shifts in vertical demand are expected.  For example, the warehouse/DC market within the transportation sector will see increased activity as RFID tagging shifts away from the store; however, the manufacturing sector will see a longer-term increase in demand once source-tagging becomes more commonplace.

• The transportation market – which includes product movement from the point of manufacture through the store floor, as well as travel and logistics – not only continues to account for the majority of reader consumption, but remains a leading adopter of hybrid (i.e.: more than 1 frequency or technology) solutions. Primary applications within transportation include supply chain management, asset tracking, ticketing, baggage handling and security/access control.
• The pharmaceutical vertical is gaining significant traction in the APAC region, largely due to the Korean mandate to have 50% of pharmaceutical products RFID tagged by the end of 2012. It is expected that more than 320 million tags will be consumed in Korea in 2011 for this application alone.
• Despite high-profile e-Government programs (i.e.: China ID, U.S. Passports) winding down (becoming limited to new issues and replacements), there is still significant activity occurring within the Government sector. ID programs, document management, government-driven AVI/EVR, supply chain and asset tracking. RTLS/LBS and other security/access control projects continue to exhibit significant activity and continue to deploy infrastructure as these applications scale.
• Healthcare is also exhibiting strong growth, despite longer technology adoption cycles and budget constraints.  RFID has expanded beyond asset tracking in this market to include more advanced and deeper integration applications such as embedded tags in medical implants and prosthetics, compliance with cleaning/sanitizing protocols, sample and document management, patient and employee tracking, asset and human association, and surgical tool and supply tracking.

The following is VDC’s most recent vertical market perspective of the global RFID market

 

More trends and much more granular estimates/forecasts are available as part of our 2011 RFID Business Planning Service at http://vdcresearch.com/market_research/autoid/research_reports.aspx

Why We Are Updating Our EPC Tag Numbers

As part of our ongoing research into the RFID communities, we have noted a delay in several high profile retailers’ deployment plans. 

These delays have caused us to revise our estimates and forecasts for the EPC UHF market downward in 2011 as well as adjust the growth rates in 2012 and 2013.  These changes were limited primarily to transponders in the retail sector.  Passive EPC applications outside of retail remain on par with our earlier expectations.   We strongly feel that these delays should be considered a temporary ‘bump in the road’. 

Reasons behind the revisions include:

• Wal-Mart’s deployment for women’s apparel has been delayed by approximately 2 quarters, shifting this demand toward Q4/Q1 2012.  Reasons for the delay pertain to ensuring that the supply chain has adequate support, time and resources for a success deployment.  It appears Wal-Mart does not want to repeat the previous issues/challenges they encountered when implementing RFID in their supply chain.
• Macy’s piloting has been slower than expected due to technical and process related issues and challenges.  Scaling is now expected to occur in Q2 2012
• American Apparel, which filed for bankruptcy last quarter, appears to remain flat (in tag consumption) despite announcements of installing RFID solutions in more stores.  This is most likely attributed to a focus on internal restructuring as a result of their bankruptcy.
• Several other Tier I and II retailers have also indicated they are delaying deployments by 2-3 quarters, stating that more time is needed to prepare their supply chain, further develop processes and refine what and how the data will be used, leveraged, distributed and protected.
• The conversion of the Marks & Spencer passive UHF tag to EPC Gen2 has been significantly delayed due to infrastructure-related issues pertaining to compatibility with their proprietary and EPC protocols.  Full conversion was expected to begin in 2010 – it’s now expected to start this year.

These factors correlate to a 51% reduction in expected tag volumes in 2011 to 2.1 billion units and about a 10% reduction (to 40 billion units) by 2015. 

EPC reader and printer estimates and forecasts were not significantly impacted by these revisions.

Although the near-term estimates and forecasts for EPC transponders in retail have changed significantly, we do not consider these updates a representation of decreased interest or commitment in EPC solutions.  Retail has experienced a delay, but there is no indication from any retailer that they are pulling back from RFID and there is a tremendous amount of activity occurring outside of retail.  Examples include:

In Retail:

• Although Wal-Mart is delaying their women’s apparel deployment, their plans to tag more SKUs and product types are on track and the company does not expect to encounter similar supply chain issues (as with women’s apparel).
• There are more retailers committing to deploying RFID than those experiencing delays.  For example, JC Penney, Gerry Webber, Hudson Bay and Liverpool are all increasing their investments in RFID and tagging more products. 
• There are numerous other Tier I and II retailers (we are bound by NDAs) that are scaling pilots in the U.S. and Eastern Europe – they are just ‘flying under the radar’ as a means to protect an increasing competitive advantage.

Outside Retail

• Several very large, high tag volume EPC projects that are wrapping up their piloting phases in China and are expected to scale over the next few years, including applications pertaining to supply chain and authentication of tobacco and liquor, as well as courier and transportation applications.
• Korea continues to show significant gains in a diversity of applications, such as pharmaceuticals (mandated by the government), authentication and location-based services.  The country is expected to consume more than 350 million tags in 2011 for pharmaceuticals alone.
• High volume Automatic Vehicle Identification (AVI) and Electronic Vehicle Registration (EVR) applications are blossoming, with new high-volume, government driven (and funded) installations expected in the APAC, Latin-American and European markets.  These deployments are substantial and can represent tens-of-millions of tag consumption for the initial phase with high volume recurring demand for new issues and replacements.
• Postal and courier applications continue to scale in Europe and there is increasing demand for these solutions in APAC (i.e.: China Post, Saudi Post)
• Approximately 5 more airports are expected to adopt RFID baggage handling and asset tracking solutions, primarily in Europe and APAC.  Although the tag volumes for this application have been lagging expectations, they are continually increasing and each airport can consume tens-of-millions of tags annually.

The following chart provides our updated thinking on the EPC hardware market:

 

The Global Market for EPC RFID Hardware

The market for EPC RFID hardware exceeded $354 Million in 2010, an increase of more than 140% over 2009.  We anticipate that the market will continue to experience rapid growth in 2011, with global revenues growing more than 104% (over 2010).  Our latest thinking on this market is provided in the chart below.

 
 
The following are a couple of additional highlights on the EPC RFID hardware market:

• More than 1.6 Billion tags were shipped in 2010; a number expected to exceed 4 Billion in 2011 … and retail accounted for about 50%.  There are several emerging markets that will account for increasingly higher volumes over the next few years, such as AVI, EVR, Asset Tracking, People Tracking/Management, Authentication (to name a few).
• Reader volumes increased more than 75% in 2010 and are anticipated to grow approximately 60% this year; however, large orders that drove significant growth in 2010 (e.g., Wal-Mart) are not expected to be a common occurrence.
• Although significant tagging and infrastructure deployment is occurring within the retail environment, end users are indicating that the point of tagging – mainly done in-store or 1 step removed from the store – will be shifting further down the value chain.  This will mean that tagging-related revenues will most likely be a shifting toward the Transportation and Manufacturing markets as value chains and solutions continue to evolve.  VDC expects this shift to begin occurring as early as Q4 2012.