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Avery Dennison to sell one billion RFID tags in 2011?

Posted by Bret Kinsella on Mon, Oct 04, 2010
  
  
  
  
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Avery Dennison RFID Tag CostTo close out our recent theme on RFID tag cost, I thought I would point out an under reported story from the Wall Street Journal earlier this month (RFID 24-7 was one of the few).  It was an analysis of Avery Dennison’s retail information unit which includes RFID and commands healthy 12-14% profit margins. 

 

The other side of RFID Tag Cost is Revenue

After a disappointing 2009 when retailers saw sales volumes plummet, Avery is experiencing a strong comeback this year.  The article cites estimates that Avery will generate $50 million in RFID revenue in 2010 and it could grow to $150 million next year.  At the industry average tag price of 12.35 cents cited in ODIN’s recently published RFID Tag Pricing Guide, it calculates to over 400 million RFID tags sold.   

Avery isn’t alone in its rapid growth and improving economics.  AsAvery Dennison RFID Tag we reported earlier (RFID Tag Supply Chain Delays) many tag suppliers are on back order due to such strong demand.  It is widely known in the industry that companies such as Alien Technology have produced record tag sales each quarter this year. 

 

Will Avery Sell a Billion RFID Tags in 2011?

Let’s do some math.  What if Avery’s RFID unit triples its revenue to a whopping $150 million next year as some analysts predict?  Even if we assume a price drop of only 5% in 2011, that would generate over 1.25 BILLION tags sold.  If the revenue is only $100 million and prices drop by 10%, the total volume would be 900 million.  One billion annual tag sales seem certain no later than 2012 and we are probably looking at numbers closer to two billion for that year. 

These are clearly the kind of numbers many early investors were looking for when Walmart and the U.S. Department of Defense made their first RFID announcements in 2003.  It has been fashionable to talk down RFID due to growth rates over the past six years that didn’t meet short-term expectations.  With RFID adoption growing rapidly across multiple industries, we expect the dominant RFID narrative to shift permanently in 2011.

What do you think about Avery’s march to one billion tags? 

Who do you think will be the tag market share leader next year? 

Join the discussion by adding your comment below.  

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Comments

I hope it all comes true but it's like a Dilbert cartoon when each year I hear the battlecall "This is the year for RFID".
Posted @ Monday, October 04, 2010 1:20 PM by Kelly Stark
Kelly, Good point. There were people overhyping the timing of RFID adoption in the past. However, things are different now.  
 
The expectation of demand has been replaced by actual demand. With that said, although growing rapidly, you should note that the metal mount / specialty tag business is still two years behind the label tag business in maturity. Both markets do benefit from each other since the increased usage drives reader and RFID software sales which brings down the cost and increases the reliability for all users.
Posted @ Monday, October 04, 2010 1:36 PM by Bret Kinsella
I believe your qty estimates are correct but will they receive 12.35 cents per or are they still at the 7.5 cents per or lower?.
Posted @ Tuesday, October 05, 2010 11:37 AM by Hank Tomarelli
 
Thanks Bret. I agree that actual increase in demand for item level tagging is great for the overall RFID industry. However, the specialty tag market is not 2 years behind. The speed of adoption has picked up and the turnaround time is also faster. I think 2011 will be a good year for RFID-on-metal as well.
Posted @ Tuesday, October 05, 2010 12:46 PM by Kelly Stark
I agree about your prediction for strong sales of metal mount / specialty tags in 2011. That product set is starting from a smaller base than label tags, but the growth rate is much faster as we indicated in the RFID Tag Pricing Guide. I expect next year that demand in metal mount tags from leading manufacturers such as Xerafy will outstrip supply by the third quarter.
Posted @ Tuesday, October 05, 2010 6:56 PM by Bret Kinsella
Hank, that's a good question about the average tag price. Avery may be providing 7.5 cent dry inlays, but we see no indication that they are putting forward converted labels at that price anymore - although we did see some of that in the past. There may be the odd deal, but prices have stabilized. We suspect that large volume buyers are getting sub 12.35 cents for long-term commitments while smaller companies are paying closer to 14 cents. Avery's average converted label tag price is likely lower that 12.35 cents, but we doubt their median tag price is too far off from that number. With the shortage in tag supply this year, label tag producers have been more successful holding pricing to profitable levels. We also consider our estimates for this year to be conservative.
Posted @ Tuesday, October 05, 2010 7:04 PM by Bret Kinsella
The recent trend in the commodities markets with oil, plastics, copper and silver are driving up costs of the inlay that will soon be seen in then inlay and tag prices market wide. Converters have absorbed some of these increases but I expect some converter increases this spring and summer.
Posted @ Thursday, January 13, 2011 12:32 PM by Clyde Church
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