SAMSys To Benefit From RFID Adoption
By Stuart Weinberg Of DOW JONES NEWSWIRES
January 14, 2004
TORONTO (DOW JONES)--The benefits of RFID technology are well-documented: improved inventory controls, lower labor costs and theft reduction, to name a few. But so far, the much-hyped technology, used to track inventory across the
supply chain, hasn't pushed the barcode into oblivion.
"I think one of the biggest problems that we faced the past few years is there was really no incentive on the part of would-be adopters to do it now," said Clifford Horwitz, chairman and chief executive of SAMSys Technologies Inc.
(SMY.V), a maker of RFID readers.
But things began to change in June. That's when Wal-Mart Stores Inc. (WMT), the world's biggest retailer, told its suppliers that they would have to adopt RFID, or radio frequency identification, technology. Specifically, the Bentonville, Ark. behemoth said its top 100 suppliers must put RFID tags on all cases and pallets shipped to three Dallas distribution centers by January 2005. The rest of its suppliers have until 2006 to comply.
In October, the U.S. Department of Defense told suppliers that they would have to to put RFID tags on pallets and cases beginning next year. And on Monday, Metro AG (MTO.G), the world's fifth largest retailer, announced a similar initiative to Wal-Mart's.
Suddenly, RFID is hot, and SAMSys is poised to benefit. The Richmond Hill, Ont. company makes "agile" RFID readers, multi-protocol scanners that can read information off a broad variety of RFID tags. There are dozens of RFID protocols and agile readers make it possible to navigate among them. Wal-Mart is recommending that its suppliers use agile readers.
Horwitz, a former chief executive of Jumbo Video Canada, founded SAMSys about 10 years ago after he "tripped over" RFID technology on vacation in his native South Africa. The technology, first used in World War II to identify approaching
planes as allies, is a major improvement over barcode technology, because RFID readers can scan more than one item at a time and don't require physical contact with a label to work.
In addition, RFID tags, which transmit radio signals to RFID readers, provide far more information than barcodes, allowing for more precise inventory tracking. For instance, retailers can determine with great precision when to re-stock items, which can save millions.
Technology Not Cheap or Perfect
But while most analysts agree RFID is the way of the future, the technology remains expensive and hasn't been perfected. Kara Romanow, analyst at AMR Research, Boston, said RFID tags are only 80-90% reliable. As well, RFID tags cost about 25-35 U.S. cents each, a "ridiculously" high sum that will prevent widespread adoption, she said.
Industry observers generally agree that the tag price needs to fall to about 5 U.S. cents a tag before widespread adoption is feasible, Romanow said. Companies can produce barcode labels at almost no cost, she added. Romanow estimates Wal-Mart's suppliers will spend US$13-US$23 million to comply with the first phase of the retailer's RFID initiative. While they
won't admit it publicly, many aren't happy about it because they won't see a return on their investment until tag prices drop, she said.
Wal-Mart is aware of its suppliers' concerns, Romanow said, adding that she wouldn't be surprised if the January 2005 deadline proves to be a flexible one. "Wal-Mart had to...start somewhere," she said.
SAMSys is glad it did. Horwitz said he believes the company is "ideally positioned" to benefit from the Wal-Mart initiative, and the other recently announced initiatives. While the company hopes to win business from Wal-Mart, the retailer's suppliers are a potentially far more lucrative source of business, he said. "Not a day goes by that we do not have one of those vendors in our office," he said.
Wal-Mart's top suppliers include Proctor & Gamble Co. (PG), Unilever N.V. (UN) and Johnson & Johnson (JNJ). Horwitz concedes that the costs of implementing RFID are high. However, the costs must be weighed against the benefits, he said, noting that Wal-Mart has indicated it expects to save US$1.75 billion a year when its RFID initiative is complete. Companies that choose not to implement RFID, or those that do the bare minimum, risk putting themselves at a competitive disadvantage, he said.
SAMSys isn't profitable, but it expects to record "at least" breakeven results in fiscal 2004, which ends Sept. 30, Horwitz said. In the nine months ended June 30, SAMSys lost C$6.3 million, or 21 Canadian cents a share, on revenue of C$189,000.
The company has adequate cash reserves to fund operations after raising C$13.2 million through a special warrant offering that closed in October. It is burning about C$1.25 million a quarter, Horwitz said.
SAMSys expects to report its fourth-quarter results in February.
Company Web Site: samsys.com
-Stuart Weinberg, Dow Jones Newswires; 416-306-2026;
stuart.weinberg@dowjones.com |
