RFID Vendor Says Tag Prices Won't Drop to 10 Cents Until '07

Computerworld - GRAPEVINE, Texas
The cost of radio frequency identification tags has been a nagging concern for consumer goods manufacturers that need to affix the devices to the pallets and cases they ship to select distribution centers of major retailers, such as Wal-Mart Stores Inc. and Target Corp.
And if the CEO at one of the leading tag vendors is correct, the cost per tag won't hit single digits any time soon -- a potential blow to some manufacturers that have said prices must drop to that level in order for them to make a business case for investments in RFID.
Stavro Prodromou, CEO of Alien Technology Corp. in Morgan Hill, Calif., said at the RFID World 2005 conference here that his company currently sells tags at prices of less than 20 cents each to customers ordering at least a million units. Prodromou added that he expects the 10-cent tag to become prevalent by 2007, assuming a total production level of 100 million tags per month.
When standards organization EPCglobal Inc. ratified the UHF Generation 2 air interface protocol late last year, that set the stage for tag costs to drop significantly, possibly even to 5 cents apiece, said Bob Goodman, an analyst at The Yankee Group in Boston. "When are the economies of scale for the Gen 2 tag going to kick in?" Goodman said, adding that he thought tag makers would do better than 2007.
"The aggressive RFID advocates have always overstated the time frames," said Gartner Inc. analyst Jeff Woods. "They just keep pushing the goal post and hoping no one notices."
But a spokeswoman for Alien said that the pricing outlook is related to the volume of tag shipments. "It's a matter of forecasting volume, as opposed to forecasting price," she said.
Prodromou said he doesn't expect to see companies mandate usage of Generation 2 RFID tags until the cost and performance of the devices is superior to existing Generation 1 technology. He predicted that won't happen until the second quarter of next year.
Erik Michielsen, an analyst at ABI Research in Oyster Bay, N.Y., said the typical cost range for tags is currently 25 cents to 35 cents. But he added that companies need to start understanding RFID technology instead of playing "a waiting game" for tags that cost only 5 or 10 cents.
Users may be able to find a business case for RFID with more-expensive tags, Michielsen said. "The cost of the tag continues to get too much attention," he noted, "and it has distracteda lot of folks from looking at the underlying business cases that need to be calculated."

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