|Passive RFID Label
Prices and Volumes in a Vicious Circle
December 14, 2006
The market for passive RFID labels - particularly UHF labels - has not
yet grown as stakeholders in the industry had hoped. According to a
new study from ABI Research, the reason these core components of RFID
tags have failed to achieve their expected potential is the
relationship between prices, volumes, and the business case for RFID.
|In a classic
"vicious circle" dynamic, production costs for UHF labels (hence for
Gen 2 passive labels) are still at levels tending to inhibit the
high-volume deployments that would provide economies of scale.
Research analyst Robert Foppiani says, "At current prices, many
end-user companies in the retail/CPG supply chain struggle to
determine a compelling business case for RFID. Those companies that
have high value, high risk goods are often able to find a business
case to justify the investment in RFID passive labels at current
prices. But many members of the value chain are operating on thin
margins, and most are unwilling to drop prices any further until there
is much greater volume."
So label vendors are trying a variety of tactics to wring every last
cent out of the cost of their products. Alien, Avery Dennison, Texas
Instruments, and NXP hope that their strap technologies will do the
trick; multiple vendors are hoping to shrink the size of an IC to
obtain more units from a single wafer.
A number of EPC Gen 2 RFID vendors are engaged in "loss-leader"
activities, offering labels at unsustainable prices in an effort to
gain market share. Eventually, some will drop out of the running, or
will find niche markets where their products can find a role. ABI
Research believes that cost reduction tactics will not have a
short-term effect on market volumes. The substantial price cuts seen
in the past year were necessary to attract end users complying with
mandates. Looking forward, future vendor attempts at lowering
production costs will make more sense as higher volumes are reached.
Users will proceed cautiously case-by-case and volumes will rise
slowly and steadily rather than dramatically.
ABI Research's new "RFID Passive Label Markets" examines the role that
each member plays in the RFID passive label value chain, and the
relationships that have developed among them. It explains what is
being done to drive the market to higher volumes, and includes an
analysis of the different approaches or business models that vendors
are taking. The study forms part of the RFID Research Service.
Founded in 1990 and headquartered in New York, ABI Research maintains
global operations supporting annual research programs, intelligence
services and market reports in broadband and multimedia, RFID &
contactless, M2M, wireless connectivity, mobile wireless,
transportation, and emerging technologies. For information visit
www.abiresearch.com, or call +1.516.624.2500.