An Oasis of Opportunity

While many large label converters have plunged into RFID, small to mid-sized label companies are exploring whether the financial benefits are realizable or just a mirage.

RADIO FREQUENCY IDENTIFICATION (RFID) is making waves in the tag and label industry. From any point of view, RFID has thoroughly and profoundly caught the attention of the entire industry.

Industry suppliers have spent the last few years making avenues into RFID. In that same time, converters and their customers have hit the books, per se, filling seats at the numerous RFID seminars, conferences, and trade shows to learn about the technology and how it applies to them.

Already, a larger converters have delved in to smart labels, adding RFID converting capabilities to their shp floors and helping consumer product companies meet mandates set by Wal-Mart and the Department of Defense, among others. A few converter have even gone as far as recreating themselves as vertically inclined smart label producers with the help of technology and customer partnerships.

All eyes are on RFID, and why shouldn't they be? Market forecasts are intoxicating.

In the 60 or so years since RFID precursors were invented, 2.4 billion RFID tags have been sold, according to a new study by IDTechEx, called "RFID Forecasts, Players and Opportunities 2006-2016." Of that total, IDTechEx reports that 600 million tags were sold in 2005 and that another 1.3 billion tags are expected to be sold this year alone.

In addition, including tags, readers, services and other associated technologies, IDTechEx anticipates RFID to be a $2.71 billion market in 2006, rising to $12.35 billion by 2010—that's nearly $10 billion in four years and that doesn't include the full potential expected when item-level tagging becomes mainstream.

While not all of the profit will go to converters, new and undiscovered business opportunities exist for the tag and label industry.

"Item level tagging of retail goods is in the main a long time away, but there are label opportunities in other markets amounting to billions and tens of billions of tags needed per year per application, such as electronic passport inserts, books, drug labeling, healthcare records, postal, etc.," said Raghu Das, CEO, IDTechEx. "This even extends to labels that users would pay $8 for, such as Airbus where they need a large amount of memory and long lasting tags—more expensive substrates and encapsulation. However, this and other [markets] are unsupplied, as few are looking at the full range of diverse RFID markets that need RFID labels."

The right equipment

The sticking point that keeps many converters from diving into RFID boils down to the technology—where it is, where it isn't, costs, dependability. While RFID label converting equipment, as well as the technology that makes up RFID labels, is still evolving and being refined on a regular basis, there are equipment and technology options available.

"There are many ways a label converter can work in the RFID market today," said Bob Zaccone, VP, Graphic Solutions Int'l. "Equipment is available from many vendors for label converters to enter the market. There are many levels of financial commitment."

There are three main ways for converters to produce smart labels, Zaccone explained. The first method uses strap-attach equipment to attach an RFID strap, which makes it easier to align the chip to a printed antenna to create an inlay that can be converted into a finished label or tag.

The second way to get into the RFID market, and least costly, he added, is to buy finished inlays and incorporate them into existing label production lines with readily available equipment from major industry suppliers.

The last and most expensive option is to develop complete production systems to print antennas, mount chips, and make finished structures.

The variety of assembly methods lend themselves to a variety of equipment options. From insertion machines to strap-attach equipment to machines that print antennas, mount chips, and insert inlays into printed labels, there is a technology for every degree of difficulty in smart label production.

What's the hesitation?

The biggest fear for most converters is that if they don't take action now, they will be sitting "on the sidelines and miss(ing) out on opportunities as RFID gains more traction," Zaccone said. This is a point of differing opinions. There are legitimate reasons for converters to hesitate; however, are these reasons enough to not be actively pursuing options?

Chip imperfections, slow application speeds, and barriers such as water causing read failures are just a few key problems that need to be overcome, said Shawn Easter, marketing manager, Acucote. Other obstacles include a lack of uniform standards, which is an ongoing, major concern for converters since big RFID players—like pharmaceutical companies—don't require the same frequency for all their smart label needs.

"Two years ago it was UHF (ultra-high frequency, 869-960 MHz) for drugs—now Pfizer are rolling out item-level tagging on Viagra at HF (high frequency, 13.56 MHz) because it works more of the time in that case," Das explained. "Most item-level projects have been done at HF, yet EPCglobal [Inc.™] (a subscriber-driven organization focused on creating global standards for the EPCglobal Network™) has hardly begun work on this frequency. It is still unclear which frequency will win."

Another factor is the general makeup of the tag and label industry.

"Label converters, for the most part, are small companies that believe in the 'American Dream' of opening their own business," Easter said. "While there are a few large, multi-facility corporations in printing, it is still an industry dominated by 'Mom and Pop'-type operations. Before the large majority of converters can make the capital investment required to get into RFID, the technology must be proven and sound in the marketplace."

Furthermore, as with any developing technology, RFID and all of its associated elements are constantly being improved and updated. It's hard for smaller label converters to envision spending money on equipment that will be out-of-date by the time it hits the shop floor.

"It's a very immature market with many uncertainties," Zaccone said. "Yet there is no doubt that RFID will be employed all over—the hard part is gauging by who (my customers or not) and how fast. It's not 'if' anymore, but 'when' and 'who.' So, as more and more time passes, the original concerns become less and less valid."

Many improvements in RFID technology have occurred in only the last year. According to Max Golter, vice president, sales, bielomatik, the price of transponders (or chips) dropped significantly a few months ago. At an EPCglobal meeting this past fall, a transponder supplier announced that it had decreased the price of its technology to $.12—a drop of about $.10 from the average price. Other transponder producers followed suit with their own price cuts, some to $.10 and $.08 per transponder, Golter said.

Also, Golter said, a new way to sell transponders in continuous roll form has increased yields of working smart labels. Transponders are sold in continuous roll form either as dry transponders or wet transponders, which include an adhesive. However, new versions of wet transponder rolls are singulated, which means the rolls are cross-cut to allow removal of faulty transponders before they leave the manufacturing plant. This has resulted in 95 percent yield rates, Golter said.

Taking appropriate action

The point many industry consultants and suppliers try to hammer home is that converters need to be pursuing RFID, beginning with an educational and exploratory evaluation of their customers' businesses and the technology.

"The foremost important thing is to understand your customers' business," Zaccone said. "Customers may think they want to be in RFID, but you need to understand the market well enough to agree or disagree with them based on what their competitors are doing. So one must understand customer businesses and needs, then they need to educate themselves—high level executives, not engineering—on what RFID is and how they can incorporate it into their business. Attend RFID seminars and conventions. Network in the RFID supplier side to better understand what's available."

Education is key, Das agrees. "Stay updated with the topic. [They should] look at their customers and identify applications where they can add genuine value with RFID labels, possibly creating new markets for them and go for it," Das said. "[They should] be ready when compliances get back to them and they need to supply appropriate RFID labels. Can they use the technology internally and find their own payback—learning about the intricate can's and can't's of RFID is important to better serve their customers."

Supplying the cheapest labels is not the goal, Das continued. "We have seen many lose money with RFID by adding little value and trying to supply lowest cost versions—where, ironically as yield falls, the total cost can increase due to recompense, error handling, etc.," he said.

Label converters should have an assigned employee or committee, as well as a company initiative, to assess its customer base and approach the educational process, said Kevin Karstedt of Karstedt Associates, Ltd.

"Someone needs to spend a regular portion of their time to stay educated," he said. "Converters need to explore all the aspects so they are ready to pull the trigger when they need to."

Karstedt also suggests educating the sales team in knowing what to look for as far as if RFID is a technology that will add value to customers.

In addition, said Stan Drobac, vice president of RFID Strategy, Avery Dennison, label converters should invest in employees who understand electronics, especially RFID.

Being proactive when it comes to RFID will prove beneficial for label converters. However, being proactive doesn't necessarily require investing in smart label converting capabilities right now.

"Label converters should remain on the course they are presently on," Easter said. "Large converting corporations will bear the cost of development in order to be in front of the line when widespread adoption occurs. As the technology becomes more commodity in scope, insertion and application equipment will be cost-advantageous to the majority of the small- to medium-sized converters that dominate the industry. RFID labels will, in time, become like today's UPC code and be a standard product feature on packaging."

By Kate Sharon

Managing Editor