If true, this price point could alter the dynamics of the emerging RFID marketplace and act as a brake on its wholesale adoption by manufacturing industries, despite the benefits it affords in terms of supply chain management.
And while the likes of Wal-Mart and the US Department of Defense have initiated mandates requiring the use of RFID tagging - in the former case by the beginning of 2005 - ARC does not believe significant growth in the market will be seen for three to four years.
The 'gold rush' fever that is surrounding RFID has left manufacturers of packaged goods struggling to justify the use of RFID on their products at a time when the average cost of a high-frequency (HF) passive tag is still measured in the tens of cents per unit.
From an average price of 91 cents in 2003, the report estimates, the cost of an HF tag could fall as low as 30 cents in 2008, while ultra high frequency (UHF) tags could dip from over 50 cents to about the same price level. This is clearly far above the much vaunted 5 cent prediction, although ARC concedes that "individual suppliers may be able to reach there through the combination of high-volume contracts and low-cost form factors."
For example, label giant Avery Dennison recently took aim at the RFID sevtor and claims that its economies of scale will make it possible to supply RFID pressure-sensitive labels at the 5 cent price point. But smaller players will struggle to meet this objective.
Nevertheless, by around 2008, "the combination of maturing customer mandates and available, interoperable standard products will combine to create a burst of growth in the marketplace," predicts the report.
Pharmaceuticals possess many characteristics that make RFID an attractive solution for manufacturers, and this segment could well emerge as the dark horse in RFID adoption, predicts the report.
The pharmaceutical market is unlikely to be as sensitive to tag prices in the face of the US Food & Drug Administration's recommendation to use RFID technology to create a drug pedigree to avoid counterfeiting and diversion.
Tracking and tracing capabilities are vital to pharmaceutical manufacturers for a variety of reasons, many of them regulatory. While the early portions of the FDA timeline stress cases and pallets, by late 2007 it is likely that most item-level pharmaceuticals will be tagged as well.
The potential for this market is 12 billion item-level units in the US alone, according to the report, and pharmaceutical companiess are more likely to bear the cost of the tags as their products tend to have higher retail prices and higher margins.