RFID & Barcode: State of the Industry

Prepared for GS1/EPC Global US

AutoID & Transaction Automation PracticeTom Wimmer, DirectorDrew Nathanson, Director

VDC Research Webcast

RFID & Barcode: State of the Industry

VDC Research

These slides are from a webcast presented on 9/27/2010.

Copy of webcast and complimentary insights and data on the RFID & Barcode market available at:

http://vdcresearch.com/market_research/autoid/research_reports.aspx

Audio and copy of webcast available at:

http://www.gs1us.org/epcglobal_us/education

2 – 2010 VDC Research Group, Inc.AutoID & Transaction Automation Practice

http://vdcresearch.com/market_research/autoid/research_reports.aspx

http://www.gs1us.org/epcglobal_us/education

Agenda

• Barcode Market Overview

• RFID Market Overview

• EPC RFID

• The EPC End User

• Convergence of Barcode & RFID

• Conclusions & Expectations


Facilitated & Broader Adoption

Understanding

Awareness


Innovators

Integration of complementary technology and processes extends value of a highly penetrated and commoditized solution in late adoption phases

Early Adopters

Early Majority Late Majority Laggards

Awareness

Understanding

Barcode: New Applications, Imaging Drives GrowthIncreased demand for expanded value propositions and complementary and alternative solutions

CommittmentCommittment


Bar

cod

e 20

10

Barcode Demand Truly Global – Including Emerging

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AMERIC

AS

EMEA

APAC

Regional Demand for Barcode Solutions2009: $9.7 Billion

• While the Americas leads other geographic regions today, long-term growth prospects are especially promising throughout Eastern Europe and developing Asian markets.

• Suppliers are anticipating gradual shifts in regional demand and investing accordingly, establishing relationships with Original Design Manufacturers and distribution channel partners within these theaters of operation.

• Growth will be bolstered by increased demand in emerging country markets throughout APAC, Eastern Europe, and Latin America as manufacturing continues to shift from the North to the South and from the West to the East. This shift will create a ripple effect as the transportation and logistics infrastructure is developed to support this migration.

• This geographic expansion will be funded by the cultivation of a robust installed base in established country markets, enhanced by broader adoption among SMBs, and emerging markets / applications.


Operations improvement drives adoption at home; Compliance drives adoption in emerging markets

Equipment Markets Dwarfed by Consumables

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Global Demand for Barcode Solutions by Product Type

2009: $9.7 Billion

• Scanner suppliers are cautiously optimistic regarding near-term prospects because many deploying enterprises are demanding more from their data capture solutions than currently installed solutions can support.

• As the information requirements of deploying enterprises grow, the ability to decode 2D symbologies and complement legacy scanning solutions with image capture capabilities will spur increased investment consideration for imagers.

• As prices points for 2D imagers decline, this technology will increasingly receive investment consideration for the new applications and application extensions it can support.

• Barcode printer vendors are innovating to garner increased share of the consumables market (razors and blades) while helping deploying enterprises to reduce consumables consumption and associated expenses.

• At the same time, label and receipt paper converters strive to streamline the converting process while opting for more environmentally friendly raw materials.


The need to convey more information is driving innovation across all product categories

RF

ID 2

010

Understanding

Awareness


Innovators

Shift from Understanding to Commitment indicates beginning of broader and facilitated adoption

Early Adopters

Early Majority Late Majority Laggards

Awareness

Understanding


RFID Expansion Deeper, Broader. More real?Solution moving to next phase on latest adoption lifecycle … this time it is broader, and deeper

CommittmentCommittment


Fragmented RFID Markets Grow In Many Ways

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AS

EMEA

APAC

Global Demand for RFID Solutions by Region

2009: $3.6 Billion


A number of powerful application clusters are driving growth in all three regional and product markets

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Global Demand for RFID Solutions by Product Type

2009: $3.6 Billion

HF, UHF Will Dominate Future Investment

201420132012201120102009

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EPC UHF

LF

UHF (n

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PC)

MIC

ROWAVE

Global Demand for RFID Hardware by Frequency

2009: $2.03 Billion

• LF continues to lose share to HF in many core applications such as security / access control and ID due to performance, application specifications, convergence with other applications and stronger global standards.

• The EPC market is exploding as item-level tracking, inventory control and supply chain applications scale, pilot-to-deployment times are decreased, and continued integration with legacy infrastructure occurs throughout the value chain. Additional longer-term momentum is also expected to be provided by emerging applications such as Automated Vehicle Identification and baggage handling.

• Although most of the growth in the HF market will come from smartcard – based applications such as contactless payment, e-Government and ID, significant revenue contribution is expected from other high-volume applications such as ticketing and library.


LF losing share to HF, EPC volumes to explode with item-level tracking

That Strong Near-Term Growth?


• A significant share of the revenue gains during the next 2-3 years are expected to be concentrated in the ‘existing account’ community.

• These companies have been funding pilots, with partners, and are expected to offer these partners the opportunity to grow with them.

• In other words, much of the near-term growth will look like brown-field demand, not green-field.

• That said, we expect that the horizontal growth opportunities will be healthy, if smaller in scope early on.

• Account development lifecycles for these next generation green-field opportunities are not expected to take as long to develop as the current / latest generation of large account / program / project opportunities.

More scaling of the installed base than market expansion… incumbents should have leverage, but …

2010 2011 2012 2013 2014 20150%

10%

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30%

40%

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60%

70%

80%

90%

100%

Existing New

Market Share By Account Type

Defining EPC RFID is Critical

• What is the Electronic Product Code™ (EPC)? An RFID-friendly encoding scheme that represents the same GS1 identifiers used with U.P.C. barcodes

(for the identification of a specific instance or a type of trade item or asset). Defined by EPCglobal’s Tag Data Standard, it provides a bridge between legacy AutoID systems and newer

solutions such as RFID. Supported by a suite of technical standards that are accepted and understood across industries – worldwide.

• Why is EPC important? It’s backed by a framework of standards to ensure that items are being indentified and their data is captured

and shared in a way that all participants in the value chain can understand. Creates a common and cost-effective platform that can support application development, solution expansion

and the integration of alternative or complementary technologies.

• Why do we need a standard like EPC? Standards are the foundation for clear, understandable exchanges between companies in an increasingly

globalized economy. Without standards, business processes would be highly complex, especially for companies that manufacture

products from a large number of components coming from different sources. The shoe example: No global standards for shoe sizes means companies must mark the same shoes

differently for different countries and specify the right size references, which correlates to added costs typically passed on to the consumer.


Integrated Global Supply Chains Drive EPC RFID

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Global Demand for EPC RFID Solutions by Region2009: $581.8 Million

• EPC growth in the Americas region to be driven largely by supply chain and inventory management applications (i.e.: Retail, CPG, Government), as well as a burgeoning asset tracking industry.

• Although the EMEA region has been – and continues to be - a pioneering and driving force for supply chain management in retail/apparel/luxury goods, recent intelligence gathered during H2 2010 indicates that growth within the region’s EPC market, particularly the retail sector, will slow by 10-15% (from H1).

Macroeconomic conditions creating unfavorable capital investment environment.

Lower concentrations of early adopters in several emerging markets.

Lead adopters indicating a slower-than-expected scaling of their deployments.

• As RFID moves further down the value chain, supply chain applications and source tagging are expected to provide significant growth for the APAC region as a result of a high concentration of manufacturing in support of global value chains.


Supply chain applications drive growth across all regions and throughout value chains

Services Take Up Significant Market Spend

201420132012201120102009

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es

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Global Demand for EPC RFID Solutions by Product Type

2009: $581.8 Million

• Professional services, particularly installation / integration, will continue to account for a significant percentage of the total global EPC revenues over the next 5 years as these solutions continue to penetrate new accounts and markets and existing deployments continue to scale, expand and become deeper integrated.

• The passive transponder market is rapidly moving toward a consumables-based model – recurring high volume demand with increased price sensitivity and competition (and lower brand loyalty).

• Reader adoption remains strong for both stationary and mobile devices as infrastructure continues to be deployed to support new and scaling installations. Growth of OEM modules continues to be linked to continued integration with other devices and infrastructure.

• The role of the Software provider is becoming more core to a successful implementation as the hardware markets become more commoditized and commercial-ized and integration deepens throughout the value chain. Nearly 35% of all end users surveyed indicated that their software provider played an influential role in determining the hardware and / or service provider.


Increased hardware commoditization continues to shift focus to software and services

EPC RFID

2009 2014CAGR

2009-2014$ MM

% Share

$ MM%

Share

TRANSPORTATION $156.8 27.1% $558.8 18.9% 28.9%

GOVERNMENT $103.8 17.9% $269.6 9.1% 21.0%

CPG $128.9 22.3% $522.2 17.6% 32.3%

RETAIL $53.5 9.2% $473.7 16.0% 54.7%

COMMERCIAL SERVICES

$29.3 5.1% $210.3 7.1% 48.3%

AUTOMOTIVE $47.4 8.2% $83.1 2.8% 11.9%

HEALTH CARE $19.7 3.4% $79.8 2.7% 32.2%

ELECTRONICS $12.4 2.1% $46.8 1.6% 30.5%

PHARMACEUTICALS $8.2 1.4% $54.7 1.8% 46.2%

OTHER $18.9 3.3% $663.2 22.4% 103.8%

• Although EPC RFID continues to become more horizontal, with applications such as supply chain, inventory control and asset tracking being implemented across a diversity of vertical markets, the solutions are also increasingly being evaluated and used in emerging and converging applications such as EAS and sensing/monitoring.

• EPC has witnessed unprecedented growth in the retail sector over the past 18 months, largely driven by the successful implementation and scaling of Item-Level Tracking (ILT) applications within the fashion/apparel, luxury goods, and “brand” markets. The high-percentage of limited-use tags in support of these ILT applications has been so great that capacity has become an issue – albeit a temporary one.

• Although the success in retail is expected to cascade throughout other integrated value chains, it is only a part of the EPC story in those verticals. For example, growth is also seen in a diversity of applications outside of retail:

AVI, asset management, environmental monitoring and baggage handling in transportation

Shop-floor, asset utilization, source-tagging, environmental monitoring and inventory control in CPG


Core verticals continue to evolve and expand, driven by horizontal applications

Examples of EPC Applications

• Supply Chain Management and Inventory Control Fashion / Apparel Luxury Goods Airplane parts

• Asset Tracking & LBS IT and Medical Equipment Vehicles, Containers, Pallets People

• Baggage Handling Airports Rail Marine

From evaluations to commercial deployments, EPC solutions support an increasing diversity of applications

• Sensing / Monitoring Produce/Food products Museums/Artifacts Life Sciences/Pharmaceuticals

• Shop-Floor Automation• Consumer Electronics• WIP• Automotive• CPG

• Automatic Vehicle Identification• Parking stickers• Traffic control• Registration


RFID Users More Committed

• The market understands and accepts the technology’s value propositions more clearly, more broadly and is committing resources to accessing the potential benefits of RFID.

• The view of RFID has expanded and sharpened … deployers on focusing on how the technology can and should be used in a number of applications and ecosystems.

• Decision making is shifting away from IT to collaboration with Operations and Finance, placing more emphasis on RFID ROI potential.

• Integration continues to deepen and the technology continues to converge with existing infrastructure(s).

• Pilots are converting to deployments and deployments are scaling / expanding – approximately 20% faster than the previous year.

• RFID spending for leading adopters is increasing significantly each year (from 2009-2011) across a diversity of application markets (i.e.: >100% in Retail).

• At the same time, revenue contribution from new accounts is expected to dramatically increase within the next 2-3 years.


EPC RFID Investment Plans Are Being Funded

• Respondents that have invested more than $250,000 in 2009 are expecting to invest up to 6x more over the next two years in support of scaling their deployments and further integrating their solutions.

• The number of respondents that were using / evaluating, but did not purchase in 2009 decreased by more than 50% in 2010, with most indicating that they will spend more over the next 3 years than all previous years combined.

• Approximately 60% of all respondents stated that RFID is a primary strategic investment for their firm over the next 3 years – an increase of nearly 20% over 2009.


Pilot-to-deployment times to decrease; Significant scaling to begin Q4 2010 or earlier

20092010

2011

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Average EPC RFID Budgets(N=173)

AVERAGE RFID BUDGET

Performance vs. Key Drivers Still A Bit Gapped

• Nearly 95% of all respondents cited leading RFID adoption divers that are not new; however, the same group of respondents indicated that their solutions and suppliers are not fully meeting their expectations.

• Enhanced operations and cost reductions have become primary drivers for EPC users, a trend complemented by a shift in decision-making influence from IT to Operations.

• Actionable business intelligence distributed to key decision-makers in real-time has become a critical component of many installations, adding complexity but increasing value … significantly.

• Compliance remains a critical adoption driver for many EPC deployments – a well understood principle for many vendors as this is one of the few areas in which the suppliers are more than meeting their customer’s expectations.


Most important drivers remain rooted in operational improvement, information accuracy and security

Non-Line-Of-Sight Capabilities

Improved Performance, (Over Other AIDCSolutions)

Compliance/Mandate

Envir./Conditional Monitoring

Ability to Incld. More Info Throughout Value Chain

Competitive Advantage/ Competitive Differentiation

Labor Reduction

Product Serialization

Enhanced Security

Improved Visibility Into Value Chain

Incr. Automation/Decr. Manual Error

Chain Of Custody/ Pedigree/ 'End-To-End' Tracking

Real-Time Updating/Information

Enhanced Actionable Business Intell.

ROI For Specific App. Demonstrated

Improved Operations/Processes

0 2 4 6

Importance & Level of Satisfaction of Primary EPC RFID Adoption Drivers

(N=173)

SATISFACTION IMPORTANCE

Primary EPC RFID Applications

Other (Specify)

Animal Tracking

Baggage Handling

Sensing/Monitoring

WIP (Work-In-Process)/Assembly

RTLS/LBS

Authentication

Toll Collection/Vehicle Id

Shop-Floor Automation

Rental-Item Tracking

Anti-Counterfeiting

Asset Management

Inventory Control/MGMT

-10% 10% 30% 50% 70%

Supported & Expected EPC RFID Applications

(N=173)

EXPECTED SUPPORTED

• Although significant growth is expected for most applications, adoption of the following applications is expected to nearly triple by 2011:

Anti-counterfeiting

Authentication

WIP / Assembly

AVI

Shop-floor Automation

Sensing / Monitoring

• Even primary applications with higher penetration rates (for the survey population), such as supply chain, inventory control, and asset management, are expected to significantly increase adoption, with nearly 80% of all EPC respondents expecting to use RFID for these applications by the end of 2011.

• The convergence of RFID with other AIDC solutions continues to express itself in an increasingly wider range of applications, positioning RFID as an enabling technology and further establishing a footprint within these markets and installation environments.


Picture of health: concentration in key ‘killer apps’, a multitude of smaller market opportunities

ROI for EPC Solutions Continues to Improve


Benefits beyond expectations and expanded value propositions

20072008

20092010

20110

5

10

15

20

25

Average EPC RFID ROI

Mo

nth

s

Convergence: When Standards Matter Most

• Why convergence? Investment in competing AIDC technologies varies. Simultaneous reliance on multiple technologies enables widespread participation, provides failsafe redundancy and increased security.

• Prevalent applications

Cold chain

Multi-modal data capture (e.g.: Barcode, RFID and Voice) within warehouse

Luxury goods and apparel

Pharmaceuticals

AVI

• Over 75% of all EPC RFID Smartlabels deployed also have a barcode, and the infrastructure at nearly every read point within the retail supply chain is capable of supporting BOTH barcode and RFID.


Supply chain participants rely on mature and emerging technologies; Standards enable trouble-free trade-offs

Conclusions & Expectations – RFID

• RFID is becoming more important – perhaps even a critical enabling technology Increased end user commitment – in established and emerging accounts Evaluation investments are increasing while time-to-deployment is decreasing Rapid scaling and facilitated adoption Convergence with other core AIDC solutions Deeper integration Continued application development and deployment as a means to extract more value Decision making shifting toward Operations – about the influence on the bottom line

• Continued positioning as an integral solution, as well as persistent efforts to extract more value, will not only stimulate demand for RFID in other markets, but will cause the technology to cascade throughout value chains – eventually becoming a more open-looped, end-to-end solution.

• As the market matures and RFID becomes more open-looped, converged and broader adopted, the demand for a more universal and streamlined solution will intensify; however, the price-performance levels will continue to shift as higher performing product is required in an increasingly price-sensitive market.


Conclusions & Expectations – EPC RFID

• Total market for EPC RFID solutions to approach $260 Million in 2010 and exceed $3 Billion within the next 5 years – a CAGR of more than 50% … while still experiencing rapid commoditization and commercialization

• Reduced evaluation time periods and facilitated deployment and scaling – in both established and emerging markets and applications

• Continued shift toward a more universal and powerful solution Support for global value chains - reduction of regional barriers Deployed throughout the entire value chain Increased functionality (e.g.: higher memory, enhanced performance, more IC capabilities …) Integrated with other solutions/technologies (e.g.: EAS, sensing/monitoring, security/access control,

authentication, anti-counterfeiting …) Enhanced security

• Emergence of new business models designed to provide the benefits of EPC while mitigating risk (to invest and deploy) Managed services Customizable OTS solutions Consumables-based market dynamics


GS1 US Visibility Framework


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Notice of Copyright 2010 VDC Research Group, Inc.

The entire contents of 2010 RFID & Barcode: State of the Industry are proprietary to VDC Research Group, Inc. (VDC) and may not be distributed in either original or reproduced form to anyone outside the client’s internal organization within five (5) years of the report date without prior written permission of VDC.

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