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

Company Spotlight: austriamicrosystems Seeks Growth by Tapping the NFC market & Acquisition

Austriamicrosystems is a rapidly growing provider of RFID reader ICs. In stark contrast to many RFID chip vendors, austriamicrosystems ignores the tag market entirely, focusing strictly on more sophisticated reader ICs that highlight the company’s considerable R&D and manufacturing abilities.  Two recent strategic moves, in conjunction with the company’s vertically integrated operational structure and well-established track record of innovative, high-performance ICs, have led to rapid share gains and revenue growth. Although austriamicrosystems might not yet be among the “household” names in the RFID market, don’t be surprised if that changes during the next 1-2 years. Despite the low profile austriamicrosystems has historically maintained, VDC expects the combination of rapid growth with ongoing innovation (especially in regards to the performance/size ratio its ICs offer) will drive increasingly strong awareness of this company in the near term.

Over the course of the past 24 months, austriamicrosystems has pursued a multifaceted growth strategy that encompasses cooperative partnerships with complementary technology suppliers (e.g., Infineon, NXP), acquisition and product portfolio expansion. We believe this strategy, combined with the company’s operational and product differentiation, has been instrumental in driving its recent market share and revenue growth.

Unlike many fabless IC/semiconductor firms, austriamicrosystems operates its own manufacturing and testing facilities at its Austria-based headquarters, resulting in a vertically-integrated organizational structure that affords complete control over the R&D, manufacturing, testing and QC processes. Due in large part to the end-to-end visibility and deep product knowledge the company’s vertically integrated model affords (and its ownership of all IP used in its products) austriamicrosystems’ reader modules are among the highest performing offerings on the market. The company is further differentiated as one of the few providers that offers ICs for multiple frequencies, including HF, UHF/EPC and NFC.

In regards to inorganic growth, in July 2011 the company completed the acquisition of Texas Advanced Optoelectronic Solutions (TAOS), a provider of optoelectronic sensors that simplify the measurement and analog-to-digital conversion of light for a range of devices, including smartphones, tablets and notebook computers. The addition of TAOS materially extends the breadth of austriamicrosystems’ product line and already has resulted in significant contract wins with smartphone OEMs such as Samsung. We expect this accretive activity, combined with in-house product development, to drive significant near-term growth.

From an internal development perspective, austriamicrosystems recently introduced two NFC IC offerings, leveraging its expertise in RFID ICs to develop enabling components for the nascent (but rapidly growing) NFC market. The company is targeting its NFC IC at automotive, payment, ticketing and access control applications. In our opinion, entering the NFC market was a strategically sensible move for austriamicrosystems. Not only does NFC overlap with the company’s existing RFID business, it also positions the company to capture a share of the exponential near-term growth expected in the NFC market.

For 2012, austriamicrosystems faces some strong expectations. In its 2011 consolidated year-end financial results (representing all its businesses, not just RF), austriamicrosystems issued guidance that forecasts 25% revenue growth for 2012, after posting 32% revenue growth during 2011, representing annual revenues exceeding $383 million. While this is certainly an ambitious goal, VDC expects this target will be met, if not exceeded. Not only is the company riding its 2011 momentum, the aforementioned Samsung contract (to provide light sensors for the Galaxy smartphone lineup) won in late Q4 ’11 is expected to drive additional growth not reflected in last year’s results. Provided austriamicrosystems does not deviate significantly from the strategically successful path of innovation, partnership and acquisition that it has pursued thus far, we think it has a bright future ahead.

Cartes North America: Day Two in Review from Las Vegas

Today was day two of Cartes North America in Las Vegas. The VDC AutoID team had another full day of meeting vendors, listening to panel discussions and strolling the show floor. EMV migration and NFC again were the dominant themes, as we met with a number of services, hardware and end-to-end solution providers catering to every stratum of the payment value chain. Before we catch the redeye home to Boston, we wanted to share some of the most interesting offerings we saw during the day:

• Payment terminal leader Verifone demonstrated its entire portfolio of payment solutions, which encompasses a spectrum of products ranging from traditional stationary payment terminals to compact mobile payment sleds that enable payment processing via consumer devices like the iPhone, iPod Touch and Android smartphones. These mobile offerings, which are called Payware Mobile and Payware Mobile Enterprise, are the result of Verifone’s recent acquisition of Global Bay, a payment application provider. We were impressed by both Payware solutions and believe Verifone could expand its addressable market further by bringing this product directly to customers, as companies such as Square have done already.
• NXP, in its usual fashion, demonstrated its NFC ICs by showing off all the great applications their partner companies have created using their chips. Our favorite application featured at the booth was a NFC-enabled mini kiosk that allows university students to order and pay for their food remotely prior to arriving at the dining hall. We’ve been talking about the significant opportunity NFC has to improve service and throughput in QSRs (quick serve restaurants) and think this solution could be adapted easily for such applications. Imagine being able to order and pay for your morning coffee via a single tap of your smartphone—service speed and throughput could be increased dramatically, which translates into a stronger bottom line for the operator and better service for the customer. Sounds like a “win-win” to us…
• The US is a laggard when it comes to EMV migration, but if the activity Oberthur has been seeing in its EMV card business is any indication, momentum is starting to build in the US market. Oberthur has partnerships with a number of card-issuing financial institutions within the US, and during 2011, shipped approximately 2.5 million EMV-enabled cards to these organizations. While 2.5 million cards is a proverbial drop in the bucket in the context of the global EMV card market, we think this data point is an encouraging sign that some US financial institutions are beginning to take a proactive stance on EMV migration. Now it’s time to get to work on the merchant side of the equation…
• For Mastercard, 2010 and 2011 were dedicated to getting its NFC initiative, PayPass, up and running—in other words, establishing actual commercial deployments at major Tier 1 merchants. For 2012, the company is focused on scaling its existing deployments and spreading adoption of its PayPass solution to smaller regional and independent merchants. Mastercard, like Visa, has issued merchant guidelines that detail its expectations in regards to compliance with EMV migration initiatives. The company believes that as these deadlines loom increasingly closer, merchants that have been unwilling to migrate proactively will be likely to upgrade their infrastructure to EMV/NFC all at once in an effort to “future proof” their investments.

That concludes our visit to the inaugural Cartes North America show. It has been an interesting, informative and well-attended event. Hopefully we will be back for the 2013 edition.

Company Spotlight: Datalogic Shifts to Acquisition-Based Growth Strategy

Datalogic has historically been the European share leader in the stationary industrial scanning market, relying on revenues derived from sales in the region to maintain its position on the global leaderboard. The company’s presence in the US – one of the biggest markets for these products – has, however, been fairly low following marginally successful attempts to effectively penetrate the region via organic growth strategies. The company is now employing an acquisition-driven strategy to ensure it is able to capture and grow share within the region. This strategy is designed to achieve the following goals pertaining to the US market:

• Increase presence and share
• Broaden product portfolios that enable the company to compete in adjacent markets
• Establish strong partnerships with distribution channel organizations

Over the past couple of months, Datalogic has made two acquisitions – Accu-Sort (Industrial Scanning/ Imaging) and PPT Vision – in support of meeting the stated objectives, having declared their intentions to investors over the course of 2011. This will significantly increase Datalogic’s presence in the US market (based on VDC data), enhance and expand its patent and product portfolio, and give it access to well-entrenched distribution channels. In fact, with the acquisition of Accu-Sort, Datalogic should now be the region’s stationary industrial barcode scanner share leader. The following table highlights some of the key drivers, from VDC’s perspective, for each of these acquisitions:

In our opinion, it was time for Datalogic to change course with regard to its expansion and growth strategy in the US, and we are bullish on its two most recent acquisitions. In one fell swoop, they become a share leader, expand their technology portfolio, inherit well-established distribution channels and gain access to new markets.

Despite immediate gains in the region, we believe that Datalogic’s ability to continue to grow in the US will be dependent upon whether it can:

• Seamlessly and efficiently integrate the acquisitions
• Reassure their ‘acquired’ clients and partners that being part of the Datalogic family will only improve upon and add more value to their existing relationship
• Overhaul existing channel strategy in the US, which has only met with limited success
• Educate these new channels about Datalogic-branded products to realize full potential of acquisitions
• Employ effective regionally-specific growth and defensive strategies
• Build upon the momentum generated by these acquisitions
• Maintain a high rate of innovation

Datalogic has learned over the years that the success that they have enjoyed in Europe does not necessarily translate into the same in the US – primarily because of limited channel and marketing resources in the region. With these recent acquisitions – which we believe are not the company’s last – they do have a promising new product, technology and distribution platform to build on.

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.

VeriFone's Acquisition of Global Bay Technologies

On November 1^st VeriFone announced its acquisition of Global Bay Technologies, a mobile retail solutions provider behind some recent mobile POS deployments including Guess and PacSun. This is in line with VeriFone’s strategy to invest heavily on inorganic growth strategies (to the tune of $1 Billion), as the company looks to expand its presence in key vertical segments & emerging country markets.

Global Bay has focused heavily on developing mobile POS applications, particularly for the iOS platform, to support a variety of applications including (but not limited to):

• Queue busting, speedier checkout
• Scalable POS bandwidth for peak hours
• Targeted sales, personalized promotions
• Enhanced labor efficiency – enabling product information lookup

What makes this acquisition interesting is that both VeriFone and Ingenico (with its iPA280) have, over the past few months, broadened their solutions offerings beyond payment and made an entry into the mobile POS market. VDC sees the market for enterprise mobile POS hardware growing at a CAGR of 11.4% over the next 5 years to around $230 million, and expects payment terminal vendors to offer stiff competition to the other suppliers in the space.

This acquisition by VeriFone is also in line with VDC’s assessment of the customer engagement technology market back in May (here), where we discussed how this universal mobile form factor is causing convergence in the supplier ecosystem for key product types, having them compete for tighter retail IT budgets.

Is VeriFone looking to extensively leverage Global Bay’s POS application platform to drive traction for its PAYware Mobile devices or its dedicated mobile payment terminals? Will consumer devices make an even bigger push into the retail in-store environment with this acquisition? These are some of the questions we expect to get an answer to in the coming months, going into 2012, as the concept of ‘mobility’ yet again redefines the competitive landscape for some of the traditional point-of-sale solutions.

 

NCR Acquiring Radiant Systems, Inc.

On July 11, NCR (NYSE: NCR), one of the largest global technology vendors for assisted- and self-service solutions, announced its intention to acquire Radiant Systems, Inc. (NASDAQ: RADS), a leading technology solutions provider to hospitality and specialty retail establishments. NCR extended a cash tender offer of $28.00 per Radiant Systems share, with the equity purchase price of $1.2 billion having been approved by the boards of directors of both companies. Subject to regulatory approval, this transaction is expected to close during the 3rd quarter of 2011.

NCR’s traditional stronghold has been on the Financial Services and Retail vertical markets. This acquisition gives the company an immediate leadership position in the hospitality and specialty retail verticals, with a well-known, highly regarded and broadly installed brand.  Radiant expands NCR’s total-available-market by approximately $8 billion – this large expansion of addressable market for both organizations has led them to set a long-term business model goal of more than $7 billion in revenue and growth margins in the mid-30s.

In VDC’s opinion, this deal is a very strategic move by NCR to expand into core industry verticals – horizontal integration in order to enhance market share, increase revenue growth rates and improve margins by expanding mix of software & services – offering more complementary adjacency than the Entertainment vertical. While both companies offer software and solutions, Radiant’s growing subscription-based offering will enable NCR to build more software into the overall revenue mix resulting in substantial financial benefits.

To learn more about VDC’s analysis of the deal and the implications that we expect this acquisition to have on the global competitive landscape for retail automation solutions, click here.

EAS Gets a Boost from RFID

Checkpoint Systems recently introduced its Overhead RFID EAS system, a packaged solution that combines EAS with RFID.

Checkpoint, a market leader in loss prevention solutions for retail, just introduced its first EAS/RFID system.  The solution, which includes a low-profile, concealable overhead reader, satellite antennas, software and an alarm box, is targeted at most retail installations, particularly image-conscious fashion/clothing retailers who desire an unobtrusive and smart EAS solution.  

The new system leverages Checkpoint’s Wirama reader, the first reader fully manufactured by the company and a result of its 2009 acquisition of Wirama.  It is further differentiated by its use of hard tags, as opposed to consumable hang tags. Hard tags—which account for the vast majority of item-level tags in retail—were chosen to increase security (hang tags are relatively easy to remove) and to maintain consistency with current EAS form factors used in apparel. 

The performance of this solution still has some limitations (for example, no add-ons for metal detection to combat foil bags), however, the value it offers is significant and is expected to simplify cost-justification.  This system offers EAS that performs similarly to traditional solutions, but is enhanced with RFID capabilities. As a result, instead of simply alerting associates that an item is leaving the store without authorization, the Checkpoint solution is capable of identifying what specific item(s) were taken and directing that information to ensure the most appropriate and timely response. Furthermore, the system is capable of identifying potentially suspicious merchandise movement, enabling associates to take preemptive measures.

Specifications are provided on the Checkpoint website (http://www.checkpointsystems.com/) – look into the location, merchandise direction and inventory control capabilities to see further differentiation points and value add capabilities.

The press release for this product can be downloaded on the Checkpoint website or by clicking the following link: press release.

NCR Augments Product Portfolio by Purchasing Netkey's Assets

On November 2, NCR Corporation (NYSE: NCR) officially announced purchasing the assets of Netkey, a leading provider of enterprise-class software for the development, deployment, management and security of self-service kiosk and digital signage applications.

The terms of the deal were not disclosed, but VDC believes that the deal is beneficial to both parties.  This acquisition comes almost immediately after NCR announced its mixed Q3 results that saw revenues and net income increase slightly from Q2 of 2009, but decline significantly from 2008.

As these enterprises look to establish strategic partnerships with entrenched, global solutions providers, NCR has strengthened their case for inclusion on a shrinking list of potential partners.  The question remains: “what’s next?”

In VDC’s opinion, the advancement of stakeholder interaction management and the proliferation of next-generation transaction and branding solutions is what’s next.  Put another way, anticipating how customers will want to receive information and transact business is only one part of the self-service equation, and one that NCR is even better positioned to address through the acquisition of Netkey.  The real source of competitive differentiation for enterprises deploying self-service solutions will come from using the information they capture from each customer interaction to create a source of sustainable competitive advantage.  NCR and a contracting list of competitors will be there to meet this challenge.

To view VDC's research note: NCR Aquires Netkey please click here.