Gartner Says Worldwide RFID Revenue to Surpass $1.2 Billion in 2008

Rapid Consolidation of Both Hardware and Software Providers is Expected This Year

STAMFORD, Conn., February 2008 —

Worldwide radio frequency identification (RFID) revenue is forecast to total $1.2 billion in 2008, a 30.9 percent increase from 2007 revenue of $917.3 million, according to Gartner, Inc. By 2012, worldwide RFID revenue is forecast to total $3.5 billion.

“The market for RFID technologies has begun to transition from being compliance-oriented to being revenue-generating and innovative,” said Chad Eschinger, research director at Gartner.

“Much of the initial adoption of RFID was driven by mandates from the U.S. Department of Defense (DOD) and Wal-Mart where compliance with a retailer directive rather than business competitiveness was often the underlying driver,” Mr. Eschinger said. “Early adopters faced tight profit margins and pressed technology providers for lower hardware costs. Fortunately for the market, this trend has waned and innovation rather than cost is becoming a key driver for adoption.”

Gartner maintains that the forced adoption of RFID created faster uptake than would have occurred normally within a technology cycle. This uptake was swiftly followed by a delay in sales and in further adoption. Since then, lessons have been learned and new applications and standards have helped to rejuvenate demand as companies have realized that the value of RFID lies in the business process innovation, not the technology.

Key trends currently driving growth in the market include growing interest in asset management projects as companies struggle to manage nonmaintained or disposable assets, and the fact that in-store inventory management — as opposed to supply chain management — is driving many noncompliance retail projects.

The RFID market is beginning its second wave of adoption — which can be characterized as the exploration phase (beyond initial pilots) — in which businesses are relying on RFID to increase their business competitiveness. Globalization is also a primary driver for RFID as businesses seek to accelerate time to market for new products, services and geographies.

However, Mr. Eschinger said that much of the RFID market is not yet at the tipping point, and while many companies know that the technology will need to be explored, it may not be practical for them to adopt it at present. “While the interest for RFID technologies is high, today’s buyer is more discriminating than in the past and cautious of over-hyped technologies,” he said. “They will be looking for greater functionality and return on investment.”

RFID adoption is being impacted by the fact that users cannot buy an end-to-end RFID solution from one provider. The RFID market remains diverse and complex with many small startups, provoking a sense of immaturity in the product offerings. Consequently the propensity for further merger and acquisition (M&A) activity is high, and Gartner estimates that 2008 will witness rapid consolidation of providers in both the hardware and software markets. This trend will increase as larger global entrants put a greater emphasis on competing in RFID, making it imperative for smaller providers to win as much market share as possible in the near term.

Gartner found that RFID technologies are being considered irrespective of industry, and Gartner predicts that as businesses seek to maximize technology investments, demand for industry-specific solutions and expertise will continue to grow. The leading industries for global RFID revenue in 2007 were discrete manufacturing (21 percent of market), national and international government (20 percent) and transportation (20 percent). Retail trade ranked fourth with 14 percent of the market.

Additional information is available in the Gartner report “Market Trends: Radio Frequency Identification, Worldwide, 2007-2012" This report is available on Gartner’s Web site at http://www.gartner.com/DisplayDocument?ref=g_search&id=600311&subref=simplesearch.