IBM and Philips announced a joint initiative to collaborate on radio frequency identification (RFID) technology for companies using supply-chain software.
The two companies are major players in the RFID market, which is expected to generate between US$1 and $3 billion within four years. Confident of the RFID technology’s benefit, Philips said it will deploy the new RFID-based supply-chain technology at is own semiconductor facilities in Taiwan.
Industry analysts, many of whom downplayed the impact of the deal on market-wide RFID adoption, indicated there will likely be more agreements from competitors in the near future. “It’s a good move any time two major players are getting together,” AMR senior analyst Kara Romanow told TechNewsWorld.
“They’ll be trying to implement RFID throughout Philips’ supply chain to prove that it works, said Romanow. “It builds a foundation and allows both of them to learn from it.”
Heating Up, Held Back
Philips and IBM said they will develop the RFID technology primarily for supply-chain management, retail management and smart-card solutions for finance, e-government, transportation and event ticketing.
Yankee Group analyst Adam Zawel said both companies are attempting to take advantage of the hot RFID market, particularly for supply chains and mobile-commerce applications.
Zawel told TechNewsWorld that much of the buzz surrounding RFID technology today is hype because there are still major adoption barriers, such as the price of RFID tags, the accuracy issues and the lack of standards. Zawel said that all these factors contribute to blocking RFID’s larger potential at least for the time being.
“The big return on investment is something that’s going to evolve over time as RFID gives companies visibility into the entire supply-chain process,” Zawel said.
Complimentary Cooperation
But before releasing a joint project to market, the first collaboration between Philips and IBM is mainly to develop the in-house implementation demonstrate to the industry that RFID technology can help improve distribution, inventory management and customer satisfaction. The project, initiated last November, will be fully live during the course of this year, the companies said.
“Our relationship with IBM will mean stronger time to market, improved customer confidence levels and the opportunity to leverage each others’ brands and expertise,” said Philips president and chief executive officer Scott McGregor in a statement.
AMR’s Romanow called the collaboration — the terms of which were not disclosed — a case of “Philips taking their medicine.”
Test Run
Zawel said that while there are different types of RFID implementations and corresponding challenges, the joint effort from Philips and IBM seems to be a logical starting point.
“There is a race to understand the full implications of a full RFID rollout,” Zawel said. “There’re lots of practical things to be tested, so tight partnerships between two giants could be important as they figure out how to get over the hurdles.”
Zawel said the collaboration is likely to be repeated as systems integrators team with technology providers to bundle RFID rollouts. But a perceptible trend toward such industry-wide collaborations is still a ways off.
Big Blue’s Baby
Zawel said that IBM will probably try to keep its options open and deploy its IT services strategy with as many RFID environments and applications as possible. Romanow said that IBM is likely to forge similar arrangements with other RFID technology vendors, such as Alien and Matrix.
“[IBM’s] role in Philips is by no means an endorsement of Philips [RFID] tags,” she said.
Romanow added that the deal between Philips and IBM will not drive the adoption of RFID nearly as much as the pressure from retailers, led by Wal-Mart, which are now requiring a transition from bar code technology to RFID.
“It takes a market maker to make a market and that’s what Wal-Mart did,” Romanow said. “That’s what speeds adoption.”
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