There’s a new kid on the wireless technology block, and a handful of publicly traded Canadian-based system developers are hoping to be part of the welcoming party.

The technology is radio frequency identification — RFID — the term for technology that uses radio waves to identify people or objects. Microchips and antennae in RFID tags automatically respond to radio signals from readers or scanners.

Wal-Mart, the world’s largest retailer, launched an RFID trial in January involving 100 of its largest North American suppliers and a handful of their products delivered to one of its Dallas-area distribution centres.
Other mandate setters include the U.S.
Department of Defence, and a number of other U.S. and European retail giants.

RFID is not new; it has been around since the mid-1960s. But before Wal-Mart revealed its initiative, the technology was mainly used to track high-value assets. Even so, it is a sizable market — worth about US$1.27 billion, according to AMR Research Inc. of Boston, which projects the sector will grow to US$7.5 billion by 2010. Natick,
Mass.-based Venture Data Corp. foresees a 30%-plus long-term annual growth.

For investment professionals, a handful of Canadian firms offer a way to buy into RFID.
SAMsys Technologies Inc. of Richmond Hill, Ont., Sirit Technologies Inc. of Mississauga, Ont., and Versatile Mobile Systems (Canada) Inc. of Vancouver share several elements — no long-term debt, widely held stock ownership, business longevity (at least 10 years), impressive partners, and growing customer bases. But like all early-stage tech firms, they have stock prices under $5 and no record of significant market performance or profitability.
Nevertheless, they have market caps in the range of $50 million to $100 million.

They are pure RFID plays unlike those of some of their larger, integrated U.S.
competitors, including Symbol Technologies Inc. Zebra Technologies Corp., Unova Inc., Printronix Inc. and Atmel Corp.

RFID technology is attracting the attention of retailers, among others, because it overcomes the shortcomings of bar codes.
RFID tags simplify readings because they do not require line of sight (required for a TV remote control to work). And tags are read automatically, lowering costs as there is no need for people to wand each item individually.

When RFID technology matures — in three to five years, according to industry forecasts — it will allow firms to monitor location, quantity and status of goods. An early payoff will be reducing retail stock outs, which cost the industry about 6% of total sales every year. If Wal-Mart could cut such losses by 1% — its 2003 annual sales were US$256 billion — savings would be enormous.

According to Dennis Fong, Toronto-based research analyst with Dlouhy Merchant Group and author of The RFID Report:
Navigating Uncharted Waters (October 2004), the RFID supply chain opportunity is a unique segment of wireless technology.
Major risks are company execution, timing of RFID rollouts and speed of user acceptance.

Beyond supply-chain management, RFID is already improving asset management, security and tracking and tracing capabilities. It enables users to reduce the number of lost or misplaced tools, equipment and vehicles. With further enhancements, supermarkets will be able to track the entire history of beef products.
Drug companies could use tags to identify their own drugs to weed out counterfeit and “grey market” goods. Hospitals could keep closer tabs on newborns and wandering patients.

But barriers remain. RFID involves real science. Achieving 100% read rates is difficult because liquids, metal, atmospheric conditions and other radio waves reduce scanner effectiveness. Global agreements for radio frequencies and product protocols have not been established, and hardware and software specifications have not been standardized.

Here are three major Canadian players:

> SAMsys Technologies (SMY, TSX)

In 2004, this company achieved several milestones: it reached record annual sales of $3.6 million; completed a gross $13.2-million private placement; graduated to the TSX from the TSX Venture Exchange;
gained analyst coverage; and participated in the world’s first major RFID trials at German retail giant, Metro Group AG, two months prior to Wal-Mart’s launch.

Founded in 1994, SAMsys Technologies targets two markets. The first provides major North American and European retailers and their suppliers with a range of multi-protocol, multi-purpose RFID UHF readers. The second offers its reader technology to other original equipment manufacturers such as bar-code label printer Zebra Technologies of Vernon Hills, Ill.