Passive RFID Label Prices and Volumes in a Vicious Circle

NEW YORK CITY—December 13, 2006—The market for passive radio frequency identification (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.