Vendors Warn Of RFID Tag Shortage in Coming Months

It's likely there won't be enough radio-frequency identification tags to meet demand in the coming months.

The shortage couldn't be more ill-timed. In 12 weeks, Wal-Mart Stores Inc.'s top suppliers are expected to put RFID tags on at least some of the products they ship to three of the retailer's distribution centers in the Dallas area. The U.S. Department of Defense's deadline for its top suppliers also is January. Others, including Target Corp., want their suppliers to begin tagging shipments next year.

Alien Technology Corp. said late last week it's temporarily sold out of RFID tags based on the industry-standard Class 1 specification. Alien is one of only two primary suppliers of RFID tags that meet requirements set in most supply-chain mandates. It's telling customers it can't fill orders and to expect a three-month delay.

Businesses waited too long to submit orders, Alien executives say. It takes two to three months to produce semiconductor-based RFID tags, says Tom Pounds, VP of corporate development for Alien. "I think [customers] hadn't really believed RFID vendors when we told them earlier in the year that now was the time to order." Alien anticipated the problem in the summer and ramped up, Pounds says, but orders have been beyond even its most aggressive forecasts.

Zebra Technologies Corp., which integrates tags into labels, also says it has an order backlog, though company execs declined to give specifics. Symbol Technologies Inc., the other main supplier of RFID tags, says it has no backlog but is still asking customers to place orders three months in advance.

It's unclear just how far-reaching the shortage will be, but some say it could last all next year. Demand for standards-compliant chips is below 50 million, but that figure is expected to jump to about 20 billion by 2008, says research firm Incucomm Inc.

Equally unclear is how much the shortage will affect the mandates. But it has caught some off guard. "I had no idea it could take more than 90 days to get tags, and thought it was more like 45 or 60 days," says Richard Siegfried, manager of global UCCnet at Binney & Smith Inc., who's overseeing data synchronization and RFID projects. The Hallmark Cards Inc. subsidiary has to meet Target's June 2005 mandate and the second phase of Wal-Mart's mandate in 2006.

The lengthy production cycle is probably the biggest culprit in the current shortage. It takes about 12 weeks to make the raw silicon, which is then sent to another company that sticks a tiny RFID antenna to it, adding four weeks to the process.

arger manufacturers such as EM Microelectronic, Philips Semiconductor, and Texas Instruments say they're waiting until EPCglobal Inc., the organization overseeing RFID standards called for in the mandates, finalizes the next-generation RFID chip specification.

Shortages could drive tag prices up. Today, a tag costs 20 cents to 45 cents or more--a long way from the 5-cent tag many say is needed before RFID is widely adopted. "There's some indication that vendors may raise prices in the short term as demand outstrips supply," says Bruce Hudson, an analyst at the Meta Group.

But most agree the RFID shortage will work itself out. "I do think this is temporary because some of the larger players are moving in," says Vijay Sarathy, group marketing manager for the Sun RFID Business Unit at Sun Microsystems.

Even Alien, where the shortage is most acute, expects supply to even out. It would be just too embarrassing, after all, for a supply-chain problem to get in the way of a technology touted as transforming supply chains.