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RFID Signal Strong in 2005

By Rick Aristotle Munarriz (TMF Edible)
January 3, 2005

What is a disruptive technology? As the name implies, it's a breakthrough that rattles the walls of the conventional. Technological advances, from the automobile to the microwave oven, ultimately reshape our living experience. Over the next five weeks, we will be going over five promising technologies looking to explode into the mainstream in 2005. With our new Rule Breakers newsletter singling out tomorrow's great growth stocks early in their disruptive stage, it just seems the appropriate way to break into the new year.

Today, we're taking a closer look at RFID -- or radio frequency identification. This inventory tracking technology enters a dynamic chapter this month, as retailers like Wal-Mart (NYSE: WMT) are requiring that their largest suppliers tag deliveries with passive RFID tags. Even the U.S. Department of Defense is using them.

You don't need to know the nuts and bolts of supply-chain management to understand why RFID is going to revolutionize inventory control. Unlike dormant UPC bar code labels, RFID tags can communicate with RFID readers. So companies can track merchandise in an instant. 

It's not just retailers. The technology is already being embedded in everything from casino chips to household pets. While the current cost of the RFID tags makes it unlikely that they will replace UPC or security tags entirely, the new technology does have some investing implications in 2005.

For starters, the breadth of data from RFID tags should serve as a boon to database software companies like Oracle (Nasdaq: ORCL). While the companies making the chips, such as Texas Instruments (Nasdaq: TXN), clearly stand to benefit, more tempting opportunities exist in firms like Zebra Technologies (Nasdaq: ZBRA) and Printronix (Nasdaq: PTNX), which  specialize in the printing solutions behind the disposable labels that house the RFID chips.

In the end, the biggest winners may be the actual retailers. As long as the suppliers are able to absorb the costs of migrating to the RFID standard without inflating their prices, it is the stores that will be able to achieve some degree of margin improvement, thanks to the significant advances in supply chain management.

How big is RFID going to be? Let's just say that IBM (NYSE: IBM) and Hewlett-Packard (NYSE: HPQ) will be spending $250 million and $150 million, respectively, in RFID technology over the next five years.

Think you should follow suit as an investor? You can approach RFID from many different angles, and if your appetite for Rule Breakers has been whetted, stay close. We will be back with another disruptive technology for 2005 next Monday. And yes, there is still time to sign up for a free 30-day trial of the newsletter.

Where will tracking and supply chain management technology go from here? What are some of the other public companies looking to make a mint in RFID? All this and more -- in the RFID discussion board. Only on Fool.com.

Longtime Fool contributor Rick Munarriz wants to slap a passive RFID tag on the future so he will always know where to find it. He does not own shares in any of the companies mentioned in this story. He is a member of the Rule Breakers analytical team, seeking out tomorrow's great growth stocks today.