THE GLOBAL MARKETS AND APPLICATIONS FOR RADIO .pdf

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					                                      AN EXECUTIVE WHITE PAPER ON:




T HE GLOBAL MARKETS AND APPLICATIONS FOR
    RADIO FREQUENCY IDENTIFICATION AND
     CONTACTLESS SMARTCARD SYSTEMS,
               4TH EDITION

               VOLUME II: RFID TRANSPONDER ICS




                                   Prepared by:


                                 Michael J. Liard



                         Venture Development Corporation




                                  February 2003




    TECHNOLOGY MARKET RESEARCHERS AND STRATEGISTS SINCE 1971
 One Apple Hill Drive, Ste. 206, Box 8190, Natick, Massachusetts 01760-9904 U.S.A.
   Phone: 508-653-9000 u Fax: 508-653-9836 u Email: info@vdc-corp.com
                                 www.vdc-corp.com
The Global Markets and Applications for Radio Frequency Identification and
                                th
Contactless Smartcard Systems, 4 Edition, Volume II: RFID Transponder ICs                              1


INTRODUCTION

According to recent research conducted by Venture Development Corporation (VDC), the global
RFID transponder IC market reached $75.9 million in 2002 (see Exhibit 1). This figure represents
the IC only and does not include revenues associated with the antennas or any packaging that is
provided. Total transponder IC unit shipments for 2002 were 295.4 million. VDC forecasts predict
the RFID IC market will grow by slightly more than 27% (compounded annually) in terms of
revenues and by more than 36% annually in terms of units.

                         Global Shipments of RFID Transponder ICs by Regional Market
                                              (Percent of Dollars)

                                           2002 Total: $75.9 Million




                                               Asia-
                                              Pacific
                                              16.5%
                                                              Americas
                                                               36.6%

                                            EMEA
                                            46.9%




This White Paper is written in support of VDC’s recently completed research on the global
markets and applications for RFID equipment and systems. The report provides the most
comprehensive analysis of the RFID market available today. In the report, VDC explores the
RFID market in terms of current and emerging technologies, vendor shipments, end user
demand, distribution channels, standards development, and more. This White Paper focuses on
the RFID transponder IC market and highlights findings from Volume II of VDC’s 2002 RFID
Report.

MARKET ANALYSIS

Overall Market Overview

The anticipated shift in the mix of transponders shipped – in terms of frequency,
functionality/performance, and applications supported is leading to stronger growth for RFID ICs
in comparison to finished transponders. Although transponder costs are expected to decrease
dramatically, the IC is expected to account for a greater percentage of the total cost of a finished
transponder – primarily a factor of migration from low frequency transponders, which require a
more expensive antenna production process, to high frequency, UHF, and microwave solutions.
New IC manufacturing, antenna assembly, and label converting processes are also expected to
help drive costs lower, especially as high-volume applications emerge (i.e., supply chain
management and item level tracking).
The Global Markets and Applications for Radio Frequency Identification and
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Contactless Smartcard Systems, 4 Edition, Volume II: RFID Transponder ICs                               2

Given the current state of the RFID industry, VDC believes an overnight explosion in the near-
term (the next two to three years) is unlikely. The current RFID market remains driven by
traditional applications such as security/access control, automobile immobilization, toll collection,
and transportation. And, while many applications are still in the early adopters phase (i.e., pallet
tracking, POS/m-commerce, baggage handling, etc.), the increase in available RFID applications
suggests that the technology is moving beyond traditional application niches.

Regional Market Overview

In comparison to finished transponders, shipments of RFID ICs by regional market differ
significantly. While several Asia-Pacific based semiconductor contract manufacturers support
RFID IC production, the majority of RFID IC fabrication is conducted in Europe and North
America (refer to Exhibit 2). However, as outsourcing becomes an increasingly viable option in
the manufacturing process, foundries based in the Asia-Pacific region are expected to account for
a rapidly increasing percentage of RFID IC volume. Today, IC shipments remain highly regional,
with the vast majority of shipments from semiconductor manufacturers going to local or regional
OEM partners (transponder and/or antennae manufacturers).

                        Global Shipments of RFID Transponder ICs by Regional Market
                                             (Percent of Units)

                                          2002 Total: 295.4 Million




                                              Asia-
                                             Pacific
                                             14.5%
                                                             Americas
                                                              39.2%
                                          EMEA
                                          46.3%




IC Shipments by Frequency Overview

[It is important to note that for high frequency (13.56 MHz) revenue and unit shipments, ICs that
are ISO 14443-compliant (Type A & B) have been excluded from the VDC RFID report. Data
reflects shipments of ISO 15693-compliant RFID ICs.]

Analysis of the current segmentation of global RFID IC shipments by frequency reveals a high
degree of concentration in the low frequency bands, primarily at 125 kHz (see Table 1). As the
RFID market expands, narrowly defined applications are moving toward specific frequencies. For
example, low frequency systems (primarily 125 kHz) are widely used to support automobile
immobilization, security/access control, WIP tracking, logistics, and animal identification
applications.
The Global Markets and Applications for Radio Frequency Identification and
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Contactless Smartcard Systems, 4 Edition, Volume II: RFID Transponder ICs                       3




                                            Table 1
                    Global Shipments of Transponders ICs by Frequency
                                (Percent of Unit Shipments)


                 Frequency:                                      Percent Range:
                Low Frequency                                        70-75%
                High Frequency                                       15-20%
                     UHF                                              <10%
             Microwave Frequency                                       <5%

High-level considerations impacting shipments by frequency include the following:

•   access control and automobile immobilization represent major application segments
    in the low frequency band; however, these applications are relatively mature – RFID
    applications in electromagnetic environments (such as electronic manufacturing,
    automobile assembly, etc.) coupled with emerging opportunities in security
    applications (i.e., PC access) are expected to drive near-term low frequency
    shipments;

•   relative to North America, end users in Europe and Asia have been more receptive to
    13.56 MHz contactless smartcard and smartlabel solutions (i.e., public transportation
    ticketing, garment tracking, etc.), driving shipments to those regions;

•   primary opportunities for UHF systems in the near-to-mid term remain in the more
    developed rail car tagging and toll collection applications (that utilize higher end,
    most expensive transponders). Early adopters within the tire tracking market (such as
    Michelin) are also expected to help drive near-term shipments to North America over
    the next two to three years; and

•   microwave solutions are the most recent to develop with regard to RFID applications.
    The major benefits of systems operating in microwave frequency ranges are
    increased read range and data transmission speeds. Conversely, they tend to be line
    of sight dependent and somewhat more expensive than other (lower frequency)
    solutions.



RFID Applications Overview

While the RFID industry has grown over the last three years, much of the hardware growth came
from traditional, established applications such as security/access control, automobile
immobilization, toll collection, and animal tracking. At present, many emerging applications
remain in the early-adopter phase (i.e., pallet tracking, POS/m-commerce, baggage handling,
etc.). However, the increase in available RFID applications suggests that the technology is
moving beyond traditional application niches. Manufacturers have proven that RFID technology
works in many application environments and end users have developed a better (yet incomplete)
understanding of the benefits of RFID technology.
The Global Markets and Applications for Radio Frequency Identification and
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Contactless Smartcard Systems, 4 Edition, Volume II: RFID Transponder ICs                                      4

While the potential for viable RFID applications appears virtually limitless, the lack of standards
and high RFID system costs often become the decisive barriers to greater adoption. While the
traditional application segments will continue to enjoy solid growth, VDC research reveals that
opportunities are rapidly unfolding in the emerging application segments (see Table 2).


                                             Table 2
                      Top Five Fastest Growing RFID Application Segments*
                                      (In Descending Order)


                  No.   1                                Baggage Handling
                  No.   2                                Rental Item Tracking
                  No.   3                                Point of Sale (POS)
                  No.   4                                Real-Time Location Systems (RTLS)
                  No.   5                                Supply Chain Management
*Source: Global Markets and Applications For RFID and Contactless Smartcard Systems, 4th edition, Volume I – VDC,
2002

The following high-level observations for these application segments are important:

•   the baggage handling market has failed to progress as rapidly as previously
    anticipated; however, several trials are planned throughout the globe that should
    provide case studies and an increase in revenue in the near-term – stronger growth is
    anticipated over the long term as end users evaluate baggage handling systems and
    positive passenger bag matching programs;

•   significant future opportunities lie in the video, commercial laundry, and uniform rental
    markets where RFID systems have already brought benefit;

•   while point of sale (POS) applications such as m-commerce/automatic payment
    comprise a small fraction of current RFID hardware revenues, the market for POS
    applications are expected to grow considerably across all regions (particularly as the
    cost of transponders decreases and as individual item level tagging becomes more
    prevalent);

•   increased adoption of real-time location systems (RTLS) to support theme park
    people tracking, manufacturing processes, supply chain management, yard
    management, and high-value asset tracking applications (i.e., medical equipment
    tracking) will provide strong growth opportunities to suppliers competing in this space;
    and

•   long-term revenue opportunities are strongest within the supply chain management
    segment supporting applications such as work-in-progress tracking, container
    tracking, “cradle to grave” tracking, and pallet tracking, etc.


CONCLUSION

More rapid expansion of the RFID market has been limited by the lack of industry and application
standards, the approaching saturation points of well-established (traditional) RFID applications,
the weakness of indirect channel support, and the highly fragmented competitive environment. In
response, IC and hardware vendors have been working diligently to resolve these issues quickly
through revamped partner programs, expanded product lines, standards initiatives, and new
application developments.
The Global Markets and Applications for Radio Frequency Identification and
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Contactless Smartcard Systems, 4 Edition, Volume II: RFID Transponder ICs                             5



Although mired by these and other factors (such as price and ROI concerns), end-user demand
for RFID systems is increasing. Nonetheless, the RFID market has become a waiting game –
waiting for standards, waiting for prices to drop, waiting for major orders (especially from large
end users), waiting for the market to explode. In the interim, RFID IC and hardware suppliers
must communicate the value proposition of RFID and further education the market. And, end
users need to realize the impact RFID can have in their business environments today.

ABOUT VDC

Venture Development Corporation, a technology market research and strategy firm, was founded
in 1971. Over the years, VDC has developed and fine-tuned a unique and highly successful
methodology for forecasting and analyzing highly dynamic technology markets. VDC has
extensive experience in providing multi-client and proprietary analysis in the AIDC market. VDC
also offers in-depth market research and custom strategic planning consulting services in the
areas of industrial measurement and control, factory automation, communications, electronic
components, as well as retail automation, office equipment, and consumer electronics.

ABOUT THE STUDY

“The Global Markets and Applications for Radio Frequency Identification and Contactless
                         th
Smartcard Systems, 4 Edition” report is a greatly expanded analysis and update of VDC’s
previous RFID studies and is designed to provide subscribers with relevant up-to-date market
intelligence to support product planning, market development, and channel partnering decisions.
Volume I of the report covers RFID Equipment and Systems. Volume II addresses the RFID
Transponder IC market. The RFID market is estimated, forecasted, and trended for a number of
RFID offering categories, application clusters, end-user market segments, distribution channels,
and regional markets. Volumes I and II provide in-depth analyses of current and developing
competitive environments including supplier market shares by product category. Each volume of
the study concludes with a discussion of major trends, issues and developments shaping
structural changes to the market, the status of existing and emerging product developments, and
strategic recommendations for leading and emerging suppliers of RFID equipment and systems.

For further information about the “The Global Markets and Applications for Radio Frequency
                                                        th
Identification and Contactless Smartcard Systems, 4 Edition” report, contact Marc
Regberg, Senior Vice President, or Michael J. Liard, Project Manager. The entire report can be
purchased for $9,450. Each volume of the report can also be purchased separately. Volume I
costs $5,450 and Volume II costs $4,950.




                                                                                              cak 02/03

				
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