Globe and MailBeyond bar codes
Inventory management shakeup expected
By SIMON AVERY
TECHNOLOGY REPORTER
Dozens of companies, from entrenched technology giants to fledgling startups, are hoping to capitalize on an emerging market that promises to give the business of inventory management its biggest shakeup since the arrival of the bar code three decades ago.
In an in-depth study of the radio frequency identification industry (RFID), released this month, Bear Sterns & Co. Inc. of New York identified about 100 companies that stand to gain from the advancement of the technology, including 58 public companies.
RFID allows information encoded on small tags to be transmitted by radio signal to scanners and computer networks. Still in the testing phase, RFID technology could leap beyond the ubiquitous bar code because it allows for richer data that can be read while a tag is out of the line of site, on the move or up to nearly 10 metres away.
Several drivers are helping RFID advance. Wal-Mart Stores Inc., the world's largest and most profitable retailer, wants to improve how it tracks $178-billion (U.S.) of annual inventory purchases, and has told its top 100 suppliers to start tagging products with RFID by January. The U.S. Defence Department is also demanding some suppliers begin putting RFID tags on their shipments. Between the two of them, Wal-Mart and the Defence Department have more than 50,000 suppliers who will be effected.
Among the public-chip makers with RFID products are Texas Instruments Inc., Philips Electronics NV and ST Microelectronics NV.
Companies developing printer-encoders, the shipping labels that contain the RFID tags, include Zebra Technology Corp. and Printronix Inc. Among the software companies whose products help manage inventory, the best positioned supply chain firm is Manhattan Associates Inc., which reported that about 4 per cent of its sales in the March quarter came from RFID. Middleware and Web services providers also stand to benefit, including TIBCO Software Inc., Webmethods Inc. and Sun Microsystems Inc., says Bear Sterns.
Small firms focused on RFID tend to be highly speculative plays with an opportunity for explosive growth. Two Canadian companies fit into this category. Samsys Technologies Inc., of Richmond Hill, Ont., and Sirit Inc., of Mississauga. Samsys has spent almost a decade developing RFID products and focuses on readers to help asset and supply chain management. In April, the company was part of a partnership that delivered an automatic tracking system to the U.S. Army Joint Munitions Command. This month the firm said its readers are being used in a pilot program by Pacific Cycle LLC, the largest bicycle supplier in the United States and a supplier to Wal-Mart.
Samsys began trading on the Toronto Stock Exchange in May. Dennis dos Santos, an analyst at First Associates Investments Inc. in Toronto, has a "speculative buy" and 12-month target price of $5.50 (Canadian) on the stock, based on estimated share profit in fiscal 2006 of 17 cents and revenue of $29.4-million. Samsys shares closed down 13 cents at $2.59 on the Toronto Stock Exchange yesterday.
Sirit also makes RFID readers. Its bread and butter has been transponders in vehicles using highway tolls, but it's moving aggressively into supply chain and logistics management solutions.
There are fewer than 10 players making RFID readers and the sector is "under inhabited," Bill Staudt, Sirit's chairman and chief executive officer, said in an interview. "There's going to be far more demand than supply."
Shares of Sirit surged to a new 52-week high Monday, the day it announced a development deal with Intel Corp., the world's largest chip maker. Sirit's partnership with Intel will enhance the technology of both parties, Mr. Staudt said.
Mr. dos Santos has a "speculative buy" rating on the company and a price target of $1.15, based on a multiple of five times estimated 2004 sales of $20.3-million. Yesterday, Sirit shares closed down 9 cents at 95 cents on the TSX.