Spanish Military RFID Tagged
Spanish Armed Forces adopts RFID technology from Lockheed Martin unit.

Red Herring | August 10 2006

While U.S. retail giants have been slow to come around to radio frequency identification tags, RFID chips are now marching into the military—in Spain, said an RFID supplier Wednesday.

The Spanish Armed Forces has set up RFID technology developed by Sunnyvale, California-based Savi Technology, a unit of Lockheed Martin.

The RFID network and software for the Spanish military are interoperable with similar network applications used by NATO and other allied defense agencies.

“We believe the Savi project to be the largest RFID project in the world today—the longest-running with proof that it works with incredible benefits to the [U.S. military] organization,” said Jeff Woods, vice president at Gartner Research.

RFID chips, seen as the next productivity revolution in retail, have been slow to gain traction. Outside of the military, adoption among businesses is struggling as are many of the startup RFID companies.

RFID chips can be attached to inventory to help companies keep track of what’s in stock. The chips have raised Big Brother concerns among privacy advocates who fear that tagged merchandise could be tracked beyond the register checkout.

“The helicopter view is RFID is a classic example of human failing,” said Dr. Peter Harrop, chairman of independent research firm IDTechEx, based in Cambridge, United Kingdom. “The industrialists are not looking at the right thing—they see volume and think that means wealth.”

Built-in Market

The U.S. military required in 2004 that equipment worth over $5,000 be tagged with RFID. While military supplier Savi Technologies said it has made a profit three years running, commercial supplier Alien Technology has lost millions.

Savi does business in a so-called vertical sector that demands sophisticated tags and is willing to pay the fee of $120 per tag. U.S. retail giants Wal-Mart and Target, however, require their suppliers to place RFID tags on merchandise crates without raising the cost of the products, leaving the supplier to foot the bill and rework their budget, said Dr. Harrop.

RFID companies that serve the corporate market are waging a battle over price. With tags running as low as $0.10 per tag, Alien Technologies is losing money trying to stay in the game.

On August 4, Alien Technology withdrew its IPO registration from the U.S. Securities and Exchange Commission, citing “market conditions,” company CEO Stav Prodromou said in a statement.

Gartner Research’s Emerging Technologies Hype Cycle 2006 report, which was released Wednesday, noted that RFID was still considered a “leap of faith” initiative by most commercial companies and will not be adopted in a mainstream way for another five to 10 years.

Mr. Woods put the global adoption rate of RFID at 40 to 45 percent a year. “RFID is inevitable, but not for bar coding, the way most people thought at first,” said Mr. Woods.

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