December 22, 2004 3:52 PM PST

Wal-Mart tagging fuels RFID market

Wal-Mart Stores' top merchandise suppliers are lifting sales of radio frequency identification devices as they race to comply with a January deadline from the world's largest retailer.

Major consumer goods companies--including Gillette, Kraft Foods and Procter & Gamble--have collectively spent about $250 million on RFID tags and related equipment this year, according to a new report from AMR Research. Those companies are among the nearly 140 Wal-Mart suppliers working toward fulfilling the retailer's RFID directive.

Issued last year, the directive calls for Wal-Mart's largest suppliers to attach RFID tracking "tags" on shipments sent to several Dallas-area Wal-Mart warehouses and stores, beginning next month. The tags, which contain special microchips, are designed to automatically relay detailed information about the contents of a package or container to computers. The technology is expected to reduce much of the manual labor and human error involved in tracking inventory via bar codes.

"Wal-Mart is single-handedly responsible for moving this industry along," said Kara Romanow, the AMR analyst who wrote the new study.

Romanow noted that several other major retailers, including Albertsons, Best Buy, Target and Britain's Tesco, are also launching RFID projects with their merchandise suppliers. The U.S. Department of Defense and the Food and Drug Administration are encouraging companies to deploy the technology, too.

But Wal-Mart appears to be leading the way. The company's project may more than double the U.S. retail industry's spending on RFID equipment this year. A forecast from research firm IDC estimates that U.S. retailers and their suppliers spent just $90 million or so last year on RFID technology.

The main beneficiaries of the RFID shopping spree are hardware suppliers, including Intermec Technologies, Matrics (a division of Symbol Technologies) and Alien Technology, Romanow said. Consultants and software companies, including Hewlett-Packard, IBM, Microsoft, Sun Microsystems and SAP, are also looking for a slice of the action.

Yet this year's outlays will be just "a drop in the bucket" compared with likely future spending, given that other retailers are ramping up their deployments and Wal-Mart is expanding the scope of its initiative, Romanow said. Wal-Mart is said to be budgeting about $3 billion for RFID over the next several years.

In addition, it will cost merchandise suppliers about 10 times what they've already spent to get the full benefit of the technology, Romanow said.

"They decided to do the bare minimum to get compliant," she said. "So there's a huge opportunity for creating more business impact and a lot more spending."

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These companies are not just spending the money on tags and equipment. A lot of money is going toward local jobs and contracts. RFID has demonstrated itself to be a "localized" technology. Meaning that installation and maintenence must be hands on and not remote. The RF signatures of distribution centers and factories is too unique even within different areas of the same building. This is going to create a lot of high tech maintenence jobs and its about time.

This technology will also foster a better understanding of low power circuits for other wireless applications. The RFID tag does not have a battery and must be powered by the enery from the communcation signal sent by the reader. Also the technology of putting the chip on the tag will lead to better cheaper ways of constructing flexible circuits for other applications. The R&#38;D spin off potential is huge.
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