Just One Word: RFID

In the late '60s flick The Graduate, the impressionable Benjamin Braddock gets sage advice about the future: plastics. If the scene were replayed today, the advice might be: RFID.

Well, RFID is really not one word; it is an acronym for "radio frequency identification." Essentially, it is a way to tag items in a supply chain, just as bar-coding does.

However, RFID makes use of wireless technology, which allows for better tracking. Of course, the technology got extreme validation when Wal-Mart (NYSE: WMT  ) mandated its use with its suppliers.

A company that intends to capitalize on this "next big thing" is Printronix (Nasdaq: PTNX  ) . This is not an upstart; in fact, the company was founded in 1974. It creates printing solutions for the industrial marketplace.

True, this is not an exciting business. But Printronix was smart enough to leverage its expertise into RFID solutions for printing, bar code compliance, and network printer management.

Last week, the company announced its earnings results. Revenues for the past quarter were up 9.5% to $31 million. However, the company sustained a loss of $110,000, or $0.02 per share. Part of the loss came from investments in marketing for its RFID initiative, as well as the burdens of complying with Sarbanes-Oxley.

Printronix launched its first RFID solutions in September 2003, and since then, the company has been gaining traction. In the past quarter, RFID sales were $900,000, or 2.7% of sales. The company has been working closely with Wal-Mart, as well as the Department of Defense. Interestingly enough, because of the surge in interest for RFID, Printronix is dealing with customers it would not usually have access to.

There are many players who want to capitalize on the RFID space, such as Microsoft (Nasdaq: MSFT  ) , Hewlett-Packard (NYSE: HPQ  ) , and IBM (NYSE: IBM  ) . For example, IBM plans to spend $250 million on RFID over the next five years. HP will spend $150 million over the same period.

No doubt, part of the investment will go into buying companies. And if Printronix continues to grow its RFID business, it may ultimately be a target of these big players.

Fool contributor Tom Taulli does not own shares of the companies mentioned in this article.


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