RFID, or radio frequency identification, is considered one of the next big things. This technology, which allows mobile devices to read tags, has tremendous applications in areas such as inventory management, as seen with Home Depot (NYSE:HD) and Wal-Mart (NYSE:WMT), which use it.
So, that means RFID companies should be doing well? Not necessarily. Look at Symbol Technologies (NYSE:SBL), which has had many disappointing quarterly reports, including its most recent one, and whose CEO left forNCR (NYSE:NCR).
As for UNOVA (NYSE:UNA), which reported its second-quarter results last week, it is really two companies. First, there is the industrial automation systems segment, which manufactures machining and grinding systems for the automotive, aerospace, and heavy equipment industries.
Next, there is the automated data systems segment, which is in data collection, producing industrial hand-held computers, wireless networking, and RFID technologies.
UNOVA's revenues increased to $217.5 million from $186.6 million in the same quarter last year. During this time, earnings increased to $11.9 million, or $0.19 per diluted share, from $3.2 million, or $0.05 per diluted share, and cash increased $17.6 million to $172.8 million.
Over the past few years, UNOVA has been divesting its industrial automation systems business. The last vestiges should be gone by the end of the year, so UNOVA will then focus on its mobile and RFID businesses.
The RFID business, though, is fiercely competitive. It requires large amounts of legal costs to defend patents. And, of course, there is the continuous investment in refining the technology. To give some perspective, the competitive environment is not much different than that of semiconductors and related goods: Products cycle very quickly, and to some degree they become commodities. This drives prices down and keeps "standards" of innovation high.
However, so far UNOVA appears to be gaining ground on its competitors, such as Symbol and Zebra Technologies, winning contracts next to those competitors.
And, in fact, on the earnings news, UNOVA's stock rose 12.21% to $30.41.
Yet, as investors know, RFID is not an easy business. Success can be fleeting as companies find ways to take back business. So, while RFID providers will benefit from the technologies, the users will likely benefit the most.
Home Depot is a Motley Fool Inside Value selection. To see what other companies Philip Durell has tagged as worth more than meets the eye, click here.
Fool contributor Tom Taulli does not own shares mentioned in this article.
