Passive RFID Market—Focus UHF

CONFIDENTIAL

Report for Research Participants

2014 to 2020 Forecasts

ChainLink Research

March 2014 This report contains strictly confidential material and should not be distributed beyond your company. This report was created for survey respondents only.

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Table of Contents

RFID Passive Forecasts ........................................................................................................................................ 1

User Adoption Drives Growth .................................................................................................................... 1

Vendor Innovation ...................................................................................................................................... 2

Five-Year Industry Forecast ................................................................................................................................ 5

Assumptions/Arguments on the Growth of RFID ........................................................................................... 5

Passive Forecast .............................................................................................................................................. 6

Market Share and Top Providers ........................................................................................................................ 7

Chip Producers ............................................................................................................................................ 9

Tag Producers ........................................................................................................................................... 10

Industry Solution Highlights ............................................................................................................................. 11

Innovations for the Future ............................................................................................................................... 13

Thinner and More Powerful ..................................................................................................................... 16

Addendum – RFID Adoption Life Cycle ............................................................................................................. 17

Bibliography ...................................................................................................................................................... 18

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RFID Passive Forecasts The Passive RFID market continues its steady climb as more use cases are tested and then implemented for broad-based usage across retail, government, and industry.

User Adoption Drives Growth

RFID is being adopted by wider industries with more use cases within enterprises as they gain experience with RFID. Key drivers of growth for the industry include:

• Secure seamless, automated data scanning and control. Automating processes that have previously been difficult for organizations to obtain accurate data and strong controls for, without costly labor efforts and high manual-error levels. RFID devices that provide this type of automated data collection and control include everything from passes and tokens, access control, and smart devices, to inventory management.

• Ubiquitous mobile devices (cell phones and tablets). Industrial readers have been expensive. Now mobile devices such as cell phones and tablets are starting to be used as readers. These are less expensive and easy to use. Though many settings (warehouse, toll gates, etc.) still require industrial strength (ruggedized) readers, the consumer-retail side of the market is taking a step forward using these, leading to an attitude shift in the value of and ability to implement RFID. However, some major manufacturers of RFID tags and readers are still resisting the mobile phone as reader, for obvious reasons. Yes RFID readers are designed to be durable and there are specific designs for each purpose (unlike mobile phones). But this limits the growth of supply-chain-wide or ‘open loop’ applications, which can be accelerated by adopting widely available personal mobile devices.

• Solutions at the ready.1 A decade ago, there were scant software applications out-of-the-box that could leverage RFID data. Now applications abound from healthcare, to defense, to farming, to industrial, to retail. These allow the complete management of the process, as well as the capture of the value promised from RFID. These industry use cases, the industry-specific solutions, and especially the cloud, are real catalysts to growth. These will be talked about later in the report.2

• Use Validation/Case studies. The market has had a dearth of case studies that are testimonies to the true value achieved. In the past, potential users had to rely instead on claims and promises made by the technology companies. In fact, it took seven to eight years to get to 1 billion-tags-per-year rate of shipments. Beyond early adopters, few have spoken in public about hard benefits.3 We are beginning to see more organizations begin the journey. Our forecasts do not imply a ‘tornado effect,’ but healthy growth. A billion or two a year increase in annual tag unit sales (~26% CAGR for 2013-20204) may mean a great deal to the chip or tag manufactures that may win that deal, but it is still a relatively small market in total dollars.5 The large ecosystem of converters, software and system integration do benefit from this increase. Importantly, end-users have stated an increase in tagging product categories and use cases.

We will discuss these more in the section on Industry Solutions Highlights, page 11.

1 http://www.chainlinkresearch.com/research/detail.cfm?guid=2B239EB9-3048-79ED-99C1-F7215B7146BD 2 See addendum on RFID Adoption Life Cycle. 3 See report What is Driving RFID Adoption in Retail? 4 26% is our forecasted Compound Annual Growth Rate (CAGR) for units (not dollars) across all passive tags. Our forecasted unit CAGR for UHF only is 31%. 5 RFID Market—What Will It Take?

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Figure 1: Passive RFID Driven by User Applications

Vendor Innovation

A major catalyst for growth is the development of new and or cheaper technologies. First let’s look at the development/design innovations coming from the industry.

Dual- Frequency Tags

Tag providers like Checkpoint, Tyco, SMARTRAC, as well as many smaller tag producers are now offering dual-frequency tags.

The dual passive can be used for ID/access control cards or in retail for loss prevention + Inventory management. These cards are available in three frequency combinations: HF-UHF, HF-LF and UHF-LF or in UHF-EAS (AM6 or RF7)

• LF (125 kHz or 134 kHz) was in the past most often used for access control. That is still the most installed LF application. So new cards will still tend to have this frequency for access control along with HF when proximity is really required or UHF with less stringent distance requirements as far as access is concerned.

• HF + UHF is starting to emerge at item level for high end products such as luxury goods. • EAS + UHF are starting to be used, for example, in retail for jewelry or other luxury products.

6 Acoustic Magnetic, as used in Sensormatic systems 7 Checkpoint EAS uses 8.2 MHz RF, but is not RFID as there is no unique ID.

RFID Applications - the First Billion

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Specialty/ Variety of Tag Design/Markets

LF and HF RFID markets have a fairly low growth rate, but for special purposes they will not be retired. However, the UHF providers are innovating to be able to achieve HF performance so that UHF can become a standard in other industries, potentially displacing HF applications at a lower cost.

UHF is also encroaching on the active space. Examples of this are toll collection, which in the past was active 433 MHz.8

Healthcare is another industry where LF and HF applications are gaining some traction, but the healthcare industry has both clinical as well as retail applications. As potential users seek a standard—which will be UHF—it has and will diminish the LF/HF market.

On Metal

UHF is not without challenges. Metal and liquids still remain a problem for the mass of consumer goods. Here is one area where the antenna designers can play a larger role. In addition to approaches using dielectric substrates or spacers, on-metal RFID can also be done using specialized antenna designs.9 Firms like Avery Dennison and Alien Technology were leaders in developing these. Other players have come along in the last decade such as Omni-ID, Metalcraft, and many specialized tag producers to create these specialty tags. In order for the RFID market to really grow, these antennas will have to get even better than past designs.10

Firms like Alien have developed a line of specialty chips that work well on metal or in metal and are used by many of the on-metal/in-metal tag companies such as Xerafy. Not only the software must be able to self-tune the chip, but antennas specific to products and environment must be developed.

TAGSYS who in the past produced their own LF chips, no longer does. They use others’ chips but with their own technology for attenuation, as well as some of their own antenna designs. They have started selling tags for jewelry and displays cases, with unique antenna designs, to address these metal issues.

Display/RFID

A growing sector for RFID is electronic flexible display (electrophoresis) in combination with RFID. Here, creating an RFID tag plus visual display is valuable. Unlike paper, the display can be rewritten. Firms like Omni-ID have moved ahead with these types of tags for use in manufacturing and industrial applications.11

8 6B UHF is in use in Florida’s Sun Pass, HF in Texas, and 6C Toll Operators Committee (6CTOC) is pushing ahead in its efforts to promote a nationwide standard for the use of passive ISO 18000-6C (UHF) EPC Gen 2 RFID tags for the purpose of toll collection. Four U.S. tolling agencies that have already adopted the technology formed the 6CTOC in 2011: Georgia's State Road and Tollway Authority (SRTA), the Denver area's E-470 Public Highway Authority, the Utah Department of Transportation (UDOT) and the Washington State Department of Transportation (WSDOT). See more at: http://www.rfidjournal.com/articles/view?10038. 9 Specialized antenna designs can use the interference and signal reflection from the metal to actually improve read ranges. 10 See additional RFID Tagging report from Rutgers University discussion on on-metal tagging performance and providers - RFID Tag Selection Report 11 See The Value of Dynamic Visual Tags

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Price Performance

Another general pressure in the market is the need to reduce the cost of chips and tags. These are slightly different challenges. Chips are manufactured ‘centrally’ so scale can have an impact here. However, tags, that is, creating the end product for the market are highly distributed. There can be a ratio of 1 chip manufacturer to a 100 or more converter locations. A reduction, therefore in chip production costs will have some impact on the overall market; but to dramatically and further reduce costs, the inlay components, assembly, and especially the converters encoding costs will also need to be addressed. In Figure 2, we have a conceptual model of how these costs are distributed.

The wholesale cost of a UHF chip to the converter is around 6 cents, whereas the tag to the end user can cost from 20 cents to several dollars depending on the application. Mass market UHF RFID is between 20 cents to 40 cents depending on the volume purchased. Cost reduction efforts need to be addressed at the chip, the components, assembly, as well as the converter.

Of particular note—the antenna contribution to cost—is quite low (Figure 2). However, in the effort to drive down RFID tags costs over the next few years, every fraction of a penny will count.

The low percent of AL antennas’ cost, though, can mean that other competitive factors for an antenna designer/manufacturer could take prominence in a sales/partnership opportunity.

Figure 2 is only conceptual, since depending on the chip, antenna design, material and volume, the actual sales cost and pricing vary a great deal.

Figure 2: Estimate of Cost Distribution of Passive RFID Tags

However, producers will be on the outlook for antenna partners who can help with their price/performance challenges, no matter how fractional that contribution may be.

Today the wholesale price for a standard UHF tag for apparel is about 6.5 cents. In the next 5 years that cost could come down by 1 to 2 pennies. (See section on Innovations for the Future, on page 13, about material and changes to RFID.) So cost will always be a factor for the antenna producer in the relationship.

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Five-Year Industry Forecast The RFID market has many players and components of course: chips, tags, antennas, materials, printers, software, etc. However, to determine market size, the common denominator is the chip count. There are a limited number of chip producers in the world (see Figure 5, page 8 - Top RFID Providers Chips and Tags). To determine this number we asked the chip producers to provide us their unit and price forecasts. We received these from the major producers as well as many of the innovators. The major producers’12 share is over 80% of the UHF market13 and a major portion of LF & HF, so their forecasts are adequate to determine a credible growth trajectory for the overall market.14

We also requested and received forecasts from some of the major tag producers. These numbers are interesting in their own right since these companies work more directly with the end-customers and have a good feel for the market demand over time and drivers and interests of the end-customers. It is interesting to compare their forecasted growth and see if there are any major deltas across the value chain. Here and there certain tag and system integrators had differing growth expectations—more than plus or minus 5% from their suppliers. But overall there was symmetry across the supply chain in this market.15 However, ChainLink also talked to many end-user customers and here, this is a positive divergence (they may buy more than forecasts show) of growth. We also looked at forecasts from other industry participants, since we often participant in industry events and other research firms often publish for the public record their aggregate numbers. In general there is somewhat consensus on the positive growth on the market, but there is also some divergence on when and how that may occur. This is probably due to some methods and assumptions around what will happen in the market. (See Assumptions, next.)

There is also enough worldwide capacity to support substantial growth in the market as foundries and chip providers have put more capabilities in place to support an upswing.16 Chinese companies have invested in capacity and are hoping to attract more business from the major holders of IP. Today TSMC is the key foundry, but firms like ST have their own foundries.

Assumptions/Arguments on the Growth of RFID • Tag price break through. Tag manufacturers are working on continuing to lower the price on tags. We

expect a 1¢ to 2¢ drop in UHF standard tags in the next five years.17 • Tag producer competition. More players in the market, de facto, means price competition. This may be

offset somewhat by the innovation in chips—smarter and more secure. However, as most end-users’ tag usage grows, their concern about tag prices will increase.

• Tag on-metal readability and price. This will also be more widely adopted. Though a smaller segment of the market, industrial applications and the IoT use cases will continue to positively impact growth. Tag providers in the short term are bundling these tags with business applications such as inventory management and analytics to provide a package pricing for customers to adopt RFID.

12 Alien, Impinj, NXP 13 And NXP has a significant share of HL and LF as well 14 Although the base number used may be + or – 100M units 15 One would hope the chip providers derived their forecasts after getting the demand from the tag/converter players. 16 RFID does not consume a lot of capacity of foundries. Firms like Alien and the big fabs, as well as assembly houses, have the ability to deal with potential surges. 17 Our assumption here differs from some other market research firms who show ~5¢ drop over the next five years.

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• Retail tagging explosion. Retailers and their suppliers have stated their growth plans for RFID for the next few years which represent a ~30% or more market growth for UHF. Retail is currently ~70% or more of the total UHF market and ~ 35% to 45% of the overall market, and so this is an important catalyst for growth overall. Part of ChainLink’s forecasts for 2015 and 2016, which are higher than other forecasts, is due to direct dialogue with major retailers and them telling us how may tags they are likely to buy over the next few years. Just one retailer alone, Marks and Spencer, forecasts 400M tag purchases per year, which is 10% of the current UHF market. Other retailers are growing their usage and new retailers are joining the RFID camp.

• How fast will other categories in retail grow? The more experienced/leaders in RFID in retail are adding more categories such as jewelry, housewares, etc. However, so far it is only the leaders. That breakthrough in price performance will be needed to propel more retailers sooner into non-apparel, for larger growth here.

• Breakthrough thinking on non-retail items. Manufacturing, access control and other areas have been slow and steady growers. These are often more expensive tags such as ruggedized, Battery Assisted Passive or Semi-Active tags (BAP), or have sensor components along with them. Much innovation is going on here. These are small segments, but with large percent growth numbers. However, firms who sell these are seeing larger and larger orders and more interest by buyers in the market.

• Impact of the Internet of Things.18 Industrial companies are beginning to gravitate to IoT applications, catalyzed by cloud applications for areas such as remote monitoring of equipment and components, service and maintenance and transportation. These are interesting developments. But the impact of RFID will be modest, since many of the equipment providers can use alternatives to RFID such as Bluetooth or have built-in mobile communications. However, some applications will gain value from RFID.

Passive Forecast

ChainLink’s starting base estimate of 4.1 billion UHF units sold in 2013 is based on survey response from the major RFID providers as well as many of the younger specialty but smaller producers. Tags made with chips from Alien, Impinj and NXP represent the largest portion of the market. Those three vendors sold over 3B UHF chips in 2013.

18 See The Internet of Things at the Knee of the Curve

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Figure 3: Unit Growth of All Passive Sectors

On average ChainLink predicts a 28% growth rate for UHF each year in the forecast, except 2015 and 2016 where we are expecting a surge growth rate of 40%. This results in a Compound Average Growth Rate of about 31% for UHF from 2013 to 2020.

Other frequencies have more modest growth. The assault of the UHF community to supersede HF is part of the smaller growth of HF. But it will take five years at least for these systems to be somewhat superseded if and when by UHF.19 It will be up to channel partners, in general (tag and SI providers) to win at that competition, since chip providers will have their hands full just focusing on retail growth. Another category of growth is passive with sensors. These tags are starting to ship out in volume. There is great demand for these types of tags for consumer products and industrial markets.

Market Share and Top Providers When we look across the value chain, there are many players in the market.

19 There are efforts to replace EAS with UHF; these are also slow, but steady growers.

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Figure 4: the RFID Supply Chain

In Figure 5 we list the major players with global market share. You will note that many of these companies are not just converters or distributers of devices, but also are SI and sell software. In fact, though the RFID is the core driver, end users are looking for solution providers, often, not just tag and readers. Thus the proliferation of solutions by so-called RFID companies20 as well as the building of robust partner networks by firms like Motorola and Tyco Retail Solutions.

Figure 5: Top Providers of RFID

Of course there are many more players in the market, but the above firms are the most notable. These are the ones that have put major capital into production and innovation to create and maintain their market position. 20 RFID Global, Intelleflex, Intelligent InSites, ThingMagic/Tremble.

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Chip Producers

As mentioned earlier, the market is dominated by a few key chip producers.

Figure 6: Chip Products’ Market Share

As you can see from figure 6 the top three producers dominate the UHF market today. They own most of the channels, as well as significant IP and patents. Of the three, only Alien sells tags, in addition to chips. NXP and Impinj rely on the channel for all sales. NXP, EM, ST and Hitachi also produce HF, LF and other chips (such as μwave).

Though these producers sell though channels, often the end customer will state a preference for one chip or the other. These can be due to specialization, but also can be due to reputation. So, these chip firms engage in direct marketing as well as significant support of their channels. Since end customers know the chip, they expect the chip producer to be accountable for performance. So these chip providers are often engaged in tag overall design discussions. For example Alien does sell some percent of final tags to the market and therefore has some tag design capability and has patented antenna21 as part of their final product. Impinj does not produce the tag, but can be very influential in certain design areas. And of course, since they do produce the readers, they are very wired into how the product performs overall in the end market. Impinj, for example, told us about spending days in retail stores taking inventory and seeing how their products perform in various industry settings, not just relying on the channel to feed this information back to them.

Thus is their on-going innovation in hand-held and illumination.22 Moving from hand-held to overall intelligent environments in many business settings may require a different approach over time.

The next group of firms, including Intermec (who was once the dominant player and patent holder in RFID), EM, and ST, produce a much smaller quantity. Intermec is focused more on manufacturing and warehouse solutions, ceding retail to the others. We shall see what changes Honeywell brings to Intermec.23

21 As well as Avery Dennison - Alien and Avery were at the forefront in early RFID days to design antennas that would work in challenging environments as well as effective case and pallet tags. 22 Evolution of RFID Readers 23 Though they still had a big presence at the National Retail Federation show.

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Item-level disposable tags are much cheaper per unit than specialty tags for industrial purposes; so sales dollars are not a direct reflection of units. However, companies like Intermec/Honeywell, Zebra, and others are important and influential in the RFID market.

The major players in the UHF market produce readers as well. However, since the market conforms to ISO global standards, readers should be interoperable. The big chip vendors24 do not dominate in reader sales nearly as much, with firms like Motorola, Avery Dennison, Honeywell, Zebra and others leading market share. Readers and other infrastructural technologies (portals, wifi/routers, etc.) require the SI or the end-customer relationship. Thus chip providers lose some of their advantage in this end of the value chain, since Moto, Intermec, Zebra and others having spent decades integrating into enterprise solutions for transportation, manufacturing, to retail.

Tag Producers

Many tag producers are finding success in specializing in developing packaging, software, and focus on industry-specific and use-case-specific expertise. For example, Omni-ID has expertise in on metal, liquid, focused on manufacturing and industrial markets. Whereas Tyco, who has had decades of selling Loss Prevention for retail, now has a successful RFID business and is competing against Avery for top billing for this space. Checkpoint, though late to the actual RFID device market, has made some significant strides and is gaining real traction now.25 Although Figure 5 has a list of major Tag producers, the market has more than 200 professional converters/tag producers of note.

The most dominant Tag producers are technology companies in their own right. They develop and manufacture readers, portals (Checkpoint, Tyco) and may also at one time have produced chips and still hold patents on chips. (Example: Motorola, Intermec who sell others’ tags.) Some of these firms have IP around antennas such as on metal or liquids (Avery Dennison, Metalcraft, Omni-ID, and Xerafy).26

Tag producers have close partnerships with chip producers on the extension of the product into the specialty areas. Here the partnership on chip design and antennas are important when seeking motion, on-metal/in-metal, liquids, as well as size. Products like medical instruments are an example where RFID can be embedded, needing to withstand high temperatures and needing to be extremely small enough to fit within the design (Alien, Fujitsu, Hitachi and Xerafy for example). In fact, in general, end-product companies and tag/converters (and their imagination) are really the main limiters of market growth. Many design challenges have been met and successful demonstration of tags and packaging have been done. It remains up to the end-buyers really to seize the use case to take these projects forward.

Some companies’ major positioning is their design capabilities vs. production such as Vizinex (RCD Technologies). The companies have on staff antennae design competencies. Other companies with antenna design and production capability include firms like SMARTRAC, Confidex, Sontec, and TROI. SMARTRAC and Confidex, though, have wider market categories and sell to mass-market applications vs. TROI who specializes in industrial applications. Thus the size and market share of these companies are vastly different.

There are a few firms that just really specialize in the antennas, such as Laird. But their focus is much more on the reader, than the chip. (Thus they are not included in our top list above.)

24 However, Impinj does sell a significant volume of reader chips. 25 Recent wins such as Kohl’s are examples. 26 A write up on the on-metal tag producers is in this study from Rutgers University about on-metal tags - RFID Tag Selection Report

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The last type of tag/converter firms is those who may design some end packaging or are huge label manufacturers. Examples here are Lowry, George Schmitt, The Tadbik Group and ASK.

These firms have often dozens of products they produce for the end markets. They may have antenna design staff, but most of their attention is spent on end-customer requirements, sales, and mass production (as well as in field project management).

In the future we expect some dynamics in these markets to change. Packaging companies have a natural place to be in the tag design business. The emergence of Chinese capacity has brought tag producers like Arizona RFID, who is rapidly vying for the top worldwide producer of tags, as well as Quanray and Boing in China and GAO RFID (headquarters in Canada but produces in China.)

Industry Solution Highlights Though RFID has many use cases, the big drivers have been access control in the past and now retail apparel. Retail apparel will be responsive for the major growth27 in the market—what we saw last year (almost 20% growth) and our expectation of greater than 25% growth for the next few years.

ChainLink determined this expectation in the forecast due to not only talking to producers, but to end customers who are now adopting on a mass scale. The past RFID market has a dearth of customers publically revealing their benefits. There was a lot of hypothesis, but not real results. The effort of producers in the last decade28 to reduce the cost is now changing and will catalyze others to join in.29

Hard to forecast for the future, though, will be how well others adopt. Today we use forecast percents based on past performance in many sectors. However, there are industry forces that continue to drive interest in the market such as government initiatives in traceability, worldwide supply chain and the need to enhanced security. These are important since they will represent volume increases in sales, but also often require unique tag/antenna designs. Some of these categories are:

• Supplier/source tagging • Industrial Market—Internet of Things • Access control—Municipal, Industry • Asset tracking and locating- Farming and industrial • Food/Perishables • Anti-counterfeiting • Retail Self Checkout • Healthcare market.

Overall the ubiquity of mobile computing and increasing ‘smartness’ of smart phones will also catalyze the tagging of many more things. With the smart phone as reader, many more applications will achieve mass market. Often conjectured will be the impact of consumer applications. Just one solid use case here could be larger than the entries RFID market today. But as yet these have not arrived in mass. 27 http://www.clresearch.com/research/detail.cfm?guid=83D012EE-3048-79ED-997A-57D67E5296C1 28 http://www.clresearch.com/research/detail.cfm?guid=184CE70B-3048-79ED-99A6-BD03B8611466 29 The industry groups are now going full out to promote RFID such as GS1 with their retailers and pharmaceutical initiatives. As well there is more work on the supplier side to increase source tagging. Although suppliers will adopt either under duress or more interestingly when they find their own value propositions. More needs to be done here to catalyze this aspect of the market. Private label retailers are often already doing source tagging. Read excerpt from Item Level RFID on source tagging – The Power of End to End

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Figure 7: Industry Share—All Frequencies

When we look at the market segment shares across all frequencies, there is more balance between retail and other industries (compared with just UHF, which is much more heavily retail).

In UHF, Retail is the dominant sector and will remain so for many years to come.

Figure 8: UHF Market by Industry

Market Share – UHF Passive Market by Industry/Application

Market Share – UHF Passive Market by Industry/Application

UHF is starting to be used in Toll Collection, Healthcare, etc. Previously the domains of HF or even active.

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Innovations for the Future The future of electronics, RFID and antennas is quite interesting. Material innovations in organic polymers, Nano technology, meta materials; and innovations in processing such as advances in photolithography, electron-beam lithography, direct laser/optical lithography, electrophoretic; new battery/ power technologies—the whole area of printed electronics on organic new material, cloth and paper, all are in motion to step by step transform the semiconductor world. More flexible and cheaper production will enable a new generation of RFID growth.

Figure 9: The Future of RFID - Conceptual View

These will have a huge impact on the market in the future. Though in Figure 12 we take a swag at the growth trajectory, we have to say that forecasters who focus on that may be a better source.30 Let’s look at the future of RFID innovation.

30 IDTechEX and Printed Electronics Now are two good sources

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Chipless

Chipless touting has been done for some years now. Chipless does represent a big threat somewhere in the future since the versatility of printing is ubiquitous, (if cheap enough and smart enough printers can be developed) just as bar-coding can be done at the customer’s site. So the initial chipless threat could be to bar coding. This was what the RFID market had talked about, but the cost is too high and the versatility limited (barcodes can even be printed on cans, paper goods and virtually anything).

Studies and pilots have shown that this printed RFID can store data and perform. Though limited today, thin film transistor circuits current work continues to develop in order to make these practical and ‘reachable’ by the commercial market in the coming years. The key will be creating the equipment that can be deployed as widely as barcode printers. Though we are a long way off from that, many companies today use managed services to create their barcode or RFID labels. These end-user firms could actually turn to the converters they already work with to produce this next generation of product. But the price a converter can afford to pay is limited—not millions per printer.

Most interesting is that players who are leading chipless are a completely different group of players, such as 3M, BASF and others, who are in printing, papers, plastics, inks and other materials rather than the semi-conductor players.31 So innovation such as this could ‘up-end’ an industry. (Any major market here will be beyond the five year forecast.)

Printing Electronics

Printed electronics holds the greatest promise for the future of RFID and other ID technologies.

The market for printed electronics is growing as the processes and equipment to produce these on a mass scale is being optimized to lower the investment for producers to invest. Radio frequency identification (RFID) tags, organic light emitting diodes (OLEDs), thin-film photovoltaic (PV), printed batteries and sensors, all can be produced with printed electronics. Along with the printed ‘chip,’ technologies such as Laser structured antennas will create 3 dimensional antennas.32

“Inks and coatings are a key driver in printed electronics, with technologies ranging from metals such as silver and copper to carbon nanotubes. Because of the potential of the market, ink manufacturers large and small are developing products, from large multi-national companies such as Sun Chemical and DuPont to well-funded start-ups such as Plextronics, Kovio and PolyIC.”33

Proliferation of Antennas

Let’s face it. RFID has challenges in being read—environments vary greatly. Applications vary greatly. And customers need readability assurance. As the RFID use cases and case studies grow, so does the demand to add new categories—categories with big potential. The solutions provider who can make the health and beauty market shine will reap big rewards, for example.

31 3M, BASF, Dai Nippon Printing, Inksure, Kovio, Phillips, PolyIC, Xerox, Toshiba 32 LPFK http://www.lpkf.com/ has developed LDS technology to allow the printing of antennas. 33 Source: Printed Electronics Now publication

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Diversity is a challenge, though. Just as in other hardware markets, computer aided design has come to the RFID antennas market. NXP, for example, has introduced software product RFID - PCB Antenna Designer for UHF tags. Custom designers such as Kanemastu,34 Vizinex (RCD), as well as major tag producers, understand that versatility is important to penetrate other market segments.

Chip providers like Alien and Impinj have development platforms for their partners. And printer giants like Zebra publish standards and guidelines for antennas and inlay providers to design tags so that these products are compatible with theirs.

One challenge with antennas is quality. Just as in other ultra thin electronic areas, manufacturing with extremely high quality takes a considerable investment in equipment and know-how. So, though the antenna is a critical component of the tag, there are actually only a few major producers in the world. And from a quality perspective there is a difference in performance and reliability across the manufacturers.

High Memory

Intelligent things and IoT applications often require the smarts to travel along with the asset. Firms like Tego are making big headway here with what they call smart assets. Surely this does increase the value of the asset. As supply chains, for example, crave more visibility, they need the smarts for high risk/ high impact shipments. High value assets as well as high cost processes such as maintenance gain value from ongoing—off the grid—intelligence with high memory tags.

Visual Tagging

Already launched and gaining traction is thin film/read/write visual tags with electronic inks and/or paper already used by firms like Omni-ID.35 Supply Chain, Manufacturing process control, Scientific and lab and many use cases abound where visual—graphics and instructions—need to accompany RFID. Omni-ID has significant traction in applications such as JIT/Kanban in mega manufacturing settings. Retail will be another market where dynamic pricing in stores is a challenge.36

Passive Plus Sensors

Here we are referring to passive (not battery assist) sensors combined with RFID. Firms like RFMicron are getting traction in the market with their product. Temperature, moisture, pressure vibration—all are things you want to know about—in thousands of use cases—not just assets or items but also the intelligent environments.37

Of course the challenge—as always with RFID—is to focus on the high value use cases with a clear customer/market buying into the use case. Sensors are old story. Our world abounds with them. But taking the next leap into the RFID + Sensor world has taken some time. But our forecast is showing significant growth in this area. Again IoT may be part of the catalyst, but day to day applications from construction, to perishables/cold chain (food and beverage, Pharma, health and beauty), environmentally controlled processes, from industrial, to home application can clearly benefit.

34 Contact: http://www.kanematsu.co.jp/tabid/119/Default.aspx?language=en-US 35 Read The Value of Dynamic Visual Tagging 36 Read The Price Is Right 37 Firms like RFMicron don’t just provide sensor-based RFID but also can create the sensor-based environment with special readers and software to collect and interpret the data

Passive RFID Market—Focus UHF—Confidential Report for Research Participants

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Battery Assisted Passive

Not actually ‘active,’ these UHF + battery or semi-active tags have a place in the ‘passive’ RFID

market. BAP (Battery Assisted Passive) tags differ from Active RFID in that they do not emit a beacon. Though they have a power source of their own, they wait, like passive to be interrogated. Why have BAP, then? BAP allows more other types of applications to be part of the RFID system.

The combination of UHF + power extends the read range of the UHF significantly, but allows it to be read by the same reader as other (non-battery) passive tags. This assists with multi-layer applications where cartons, for example, that may only need passive and within a container, that may require longer read range, be re-usable and need to store more data. These all can be part of one system vs. having multiple frequencies/protocols and the hardware that would need to accompany this.

This is and will remain a fairly small market due the smaller target market due to the cost/form factor of these tags. However, the effort to provide thinner batteries and tags, as well as reduce cost can assist this sector a great deal to achieve its potential growth.

Thinner and More Powerful

Thin is in! Thinness, compactness is a goal for RFID; in many of the designed applications there is a lot of research and efforts to achieve thin and more flexible tags.

One method that researchers from the University of North Dakota have developed is the Laser Enabled Advanced Packaging. Instead of using the pick-and-place robotic methods generally employed with today’s larger tags, a laser pulse is used to insert the RFID circuitry into a substrate: in this case, paper.38

Another is thin film39—one method is creating circuits with low-temperature thin film technology.

Inlays future is also going to be thinner—and cheaper.

There are also various methods to address the tag materials—smart/electronic papers.40 Here not only the tag inlays are thinner, but the antennas must be thinner.41

Nano Technology

Nano technology is being applied both in the inks,42 as well as in tag and antenna materials.

Meta Materials

In the future a new generation of Nano-meta material—is being created. This allows for even smaller scale and ultimately cheaper technology. These are created with laser/optical lithography.

Meta materials according to research can be ‘tuned’ to different frequencies.43

38 http://www.rfidjournal.com/articles/view?10472 39https://projects.imec.be/oricla/sites/projects.imec.be.oricla/files/Imec%20%E2%80%93%20EU%20project%20reaches%20milestone%20for%20bi-directional%20thin-film%20RFID%20tags%20(Thin-Film%20RFID%20Tags)_07032012_ElectroPages.pdf 40 http://spectrum.ieee.org/tech-talk/semiconductors/devices/smart-paper-makes-traceable-money-possible 41 http://www.rfidjournal.com/articles/view?8287 42 Nano ink: http://www.nanowerk.com/news/newsid=15389.php Other Nano articles: https://projects.imec.be/oricla/sites/projects.imec.be.oricla/files/European%20project%20reaches%20milestone%20bidirectional%20communication%20for%20thin-film%20RFIDs,%20enabling%20item-level%20RFID%20tags_23022012_Nanotechnology%20Now_0.pdf 43 http://www.shef.ac.uk/eee/research/cr/research/tuneable More on Meta Materials: http://spectrum.ieee.org/biomedical/imaging/metamaterials-breakthrough-brings-invisibility-closer http://spectrum.ieee.org/semiconductors/materials/how-to-make-a-better-invisibility-cloakwith-lasers

Passive RFID Market—Focus UHF—Confidential Report for Research Participants

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Addendum – RFID Adoption Life Cycle

Stages/Market Factors

Stage 1Engineering Phase

Stage 2Component Integration Phase

Stage 3Solution Maturity Phase

Stage 4Supply Chain/Network -Effect Phase

Technology ‘Garage-based,’ university or early-stage innovationEarly-stage customers validate the technology

Design for engineering

ProductMulti-layered device, often integrated with some software

Design for repetitive manufacturing/ software and scale

SolutionIntegrated, packaged, and Interoperable

Design for packaging, whole solution

Network effect - Cloud with mobile end-points to integrate network

Design for onboarding trading partners and serviceability

Pricing/cost Very high per-unit pricing; no scale High per-unit costComponents purchased separately On the price/performance improvement treadmill

Per-unit price reductionsContinue the price/performance improvement treadmill

Multi-tiered pricing structure based on use-case and value propositions

Vision Technology or inventor provides speculative vision

End-user community provides vision, and develops the real-world use cases

Industry, enterprise, and business community recognize the match between challenges/use cases and the technology as a solution

Industry groups or ‘Anchor Tenant’ of a supply chain promote collaborative solutions to solve inter-enterprise challenges

Funding Seed fundingSometimes a lighthouse customer invests

Early adopters, visionary customers,provide revenue; sometimes additional venture funding rounds

Sustainable revenue model; channel-partner sales achieve momentum and scale

Investors or industry consortiumoften underwrite development of a 3rd-party platform; transition to sustainable-revenue model

Sales Search for visionary user/ lighthouse customer or strategy partner to embed technology

Sale discussions focus on overcoming challenges to workability

Speeds and feeds sales model; focused on the component’s performance

Sales discussions focus on specs, features, and packaging of components

Solution sales model - relationship sales, consultative sell

Sales discussions focus on demonstrated, repeatable value proposition with strategic andtangible benefits

Web marketing - focus on mass adoption across value chainDe facto is ‘community selling’ which is self-referencing in the community - e.g. bringing trading partner on board

Value prop: value of network collaboration - end-points and adherence to standards

Adoption Science project; requires technology companies’ employees to implement

Limited or no talent beyond the visionary provider’s company

Focus on experimentation

Users or integrators build ‘sockets’ andcomponents to create use casesWiring them together is still an engineering projectGrowth based on 3rd-party talent to implement technology

Focus on building repeatable integration points

Major hurdles to adoption have been overcome; methods to ensure a process to value has been established

Customers build ‘excellence’ and ‘best practices’

Focus on building implementationmethodology

Processes become instrumented with interoperable end-points, devices, web, etc.

Onboarding is streamlined Managed-service options

Self-service implementation through web or mobile

Standards May be no standard at this point Competing standards debated Winning standard emerges Standards published

Community provides interoperability, translating between variants

Certification services in place

Economics/Value Proposition

Strategic value of innovation

Being first in your industry w/ new high-differentiation capabilities

Efficiency value

Learning by doing, staying ahead of the mass adopters

Value metrics have been repetitively demonstrated

Don’t get left behind

Economies of network effect

Address cost issues for smaller or infrequent users who are critical members of the network

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Passive RFID Market—Focus UHF—Confidential Report for Research Participants

CONFIDENTIAL MATERIAL ChainLink Research, ALL RIGHTS RESERVED 2014

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Bibliography

Recent RFID Articles and Reports from ChainLink Research: http://www.chainlinkresearch.com/rfid/index.cfm

RFID in Pharmaceutical – An Idea Who’s Time Has Come

Winning the Freshness Wars: Creating Shopper Loyalty and Profitability in Retail Grocery

What is Driving RFID Adoption in Retail?

Carton-level Temperature Tracking for Cold Chain

RFID Market - What Will It Take? (Discussion of what it will take to grow the RFID passive market)

Technology Adoption - Rethinking the Model - RFID Adoption Life Cycle

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About ChainLink Research

ChainLink Research, Inc. is a Supply Chain research organization dedicated to helping executives improve business performance and competitiveness through an understanding of real-world implications, obstacles and results for supply-chain policies, practices, processes, and technologies. The ChainLink 3Pe Model is the basis for our research: a unique, multidimensional framework for managing and improving the links between supply chain partners.

For more information, contact ChainLink Research at:

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Tel: (617) 762-4040. Email: info@clresearch.com Website: http://www.clresearch.com