- - Thursday, June 17, 2010

ANALYSIS/OPINION:

One of my key investing themes is to locate disruptive technologies that are on the cusp of breaking out in terms of adoption in business-to-business, business-to-consumer or consumer-to-consumer applications. One such technology is radio frequency identification (RFID). At its simplest, RFID technology works in some ways like a bar code or a magnetic strip found on the back of a debit or credit card, but for all the similarities, they could not be further apart in terms of applications and human involvement required for benefit.

I recently had the chance to speak with Patrick J. Sweeney II, chief executive officer of ODIN, a leader in packaged RFID solutions for health care, aerospace, financial services and government agencies, about market opportunities for RFID.

Q: Patrick, in a nutshell what is RFID and why is it a better technology than bar coding and magnetic strips?

A: RFID can give an item or asset its own voice. A bar code requires a human to physically touch and manipulate an item to get information from it, and you can only scan one at a time (think of the lines at a grocery store). RFID allows an item to give information like its whereabouts, condition or cost without any human intervention. Thousands of RFID tags can “talk” at once. An RFID tag is about the size of a stamp and costs just pennies but gives much more benefit than the 35-year-old bar code. Think of 10,000 runners crossing a starting line with RFID tags on their shoes to begin race timing, every bag on an airplane tagged and located within seconds, or doing inventory of a data center or armory with the push of a button all in real time.

Q: What’s the business case to be had for RFID adoption? Why should companies consider adopting the technology?

A: Most large adopters of RFID, like Airbus, Johnson & Johnson, Dell, the U.S. Department of State have all shown a return on investment in well under a year. RFID allows manual processes like looking for things, and counting items, to be automated — it also greatly increases security. A laptop with sensitive information or a weapon can’t leave an area without “talking” to the security system. Banks and data centers are a great example — using the 35-year-old bar code inventory system to audit assets for [federal regulatory] compliance can take weeks. RFID allows it to be done in minutes, with no error, and it’s virtually impossible for servers or hard drives to go missing with a well-designed system. No one is using 35-year-old computers to process data, there is no reason to use antiquated technology to track those assets.

Q: What are some of the near term applications and longer term where will consumers be able to experience the technology?

A: Consumers can experience benefits of RFID today at ski areas like Vail Resorts or parks like Disney World. Of course many people have the EasyPass for tolls — that’s RFID as well. The future is going to see RFID everywhere: Apple and Motorola are going to embed RFID readers into mobile phones so if you want to you can “read” and register when you walk in a store and have special coupons sent to you, or track your visits and frequent buyer status at places like Starbucks. RFID will also automate social media sites like FourSquare and Facebook applications allowing your real world to interact with the virtual world. Right now people are taking pictures of a bar code with their phone, and that takes time and effort.

Q: What are some of the drawbacks to RFID and or other potential pitfalls that could slow its adoption?

A: What will slow adoption is ignorance of physics. There are two reasons understanding the physics of RFID is crucial. 1) Proper physics is what will enable 99.9 percent read accuracy, and 2) Laws of physics make RFID very poor for tracking people, but some extremists still fear privacy. Like credit cards when they first came out many people are fearful of being tracked with RFID. In truth RFID can read on order of feet, where mobile phones are GPS enabled and can track you anywhere. Just in the last 12-18 months there was a global standard adopted and RFID system costs have come down dramatically. We’re using software on readers themselves that replace expensive middleware on servers so the entire system costs get cheaper by the week.

In terms of how an investor can participate in the adoption of RFID, there are more than a few players including Intermec Inc., Federal Signal, Motorola, Zebra Technologies, Avery Dennison, and others. There are also private companies as well and some of the better known ones are Alien Technology and Impini. While all of the publicly traded ones are poised to deliver impressive earnings growth in the coming quarters, Zebra has one of the stronger balance sheets. That said, Motorola and Federal Signal are clear leaders in technology, production and recognition.

As always, do your investing homework and good hunting.

Chris Versace is director of research at Think 20/20 LLC, an independent research and corporate access firm based in Reston, Va. He can be reached at cversace@washingtontimes .com. At the time of publication, Mr. Versace had no positions in companies mentioned. However, positions can change.

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