RFID demand generates worries

Wal-Mart wants suppliers to use the tracking devices to improve logistics, but local computer makers are worried that this will eat into their profit margins

Hewlett-Packard Co's requirement for its Taiwanese suppliers to install radio-frequency-identification (RFID) technology -- a wireless automatic identification and data-capture system for tracking -- could affect the nation's computer makers' already slim margins this year, analysts said yesterday.

The world's largest retailer, Wal-Mart, has directed its top 12 suppliers to use RFID systems on their goods by next January. As a result, HP, Wal-Mart Stores Inc's largest provider of electronic goods, has asked its Taiwanese suppliers to adopt the technology by the end of August.

RFID first appeared in tracking and access applications in the 1980s. The technology can be used to track assets, manage inventory at retailers, authorize payments and -- increasingly -- serve as electronic keys for everything from cars to secure facilities.

HP, which outsourced US$16 billion worth of goods to Taiwan last year, required its local notebook makers including Quanta Computer Inc and Compal Electronics Inc to be able to embedded RFID tags on the pallets or cartons of shipments after August.

"The installation of RFID would, to some extent, affect Taiwanese personal-computer contract manufacturers' already thin margin, which is now below 10 percent," said Vic Chou, computing systems research director at Market Intelligence Center under the Institute for Information Industry .

Quanta and its local peers do not have much bargaining power but have to comply with their clients' requirement, hoping that adoption of the new technology may help enhance efficiency in the production process, inventory and logistics areas, another analyst said.

"In light of the appreciating NT dollar and hard pricing for key components, including integrated circuits and panels, because of tight shipment this year, the RFID thing could degrade contract makers' margins," said Steven Tseng, an analyst with Yuanta Core Pacific Securities.

Quanta's president Liang Tzu-cheng said that each tag currently cost between US$0.30 and US$1 and he hoped the cost could drop as low as barcoding in the future.

HP and the local suppliers would share the cost at the early stage, said Chou Mingpey, consulting and integration business operation manager at HP Taiwan.

Contract-making companies would need to extend the utilization of RFID systems to production lines and material replenishment management in the future, Chou added without giving a timeframe.

Upbeat about the RFID system application market in Taiwan, HP announced yesterday it was setting up the company's first Asian Pacific RFID Center of Excellence here, to promote the technology or the fourth such center after one in California, one in Britain, and one in Switzerland.

The company is aiming at four industries in Taiwan, including information technology and retailing, to promote its RFID solutions, said Rosemary Ho, HP Taiwan's managing director at a press conference yesterday.

The nation's second largest hypermarket, RT-Mart, and the Yulon Group are considering installing RFID systems in inventory management and vehicle manufacturing respectively.