Despite barriers ranging from high RFID infrastructure costs to a “murky intellectual property environment,” Avery Dennison plans to pour $35 million into radio-frequency identification in 2005, largely in technology aimed at boosting the availability and accuracy of RFID labels, according to a high-ranking executive.
With RFID Generation 2 products expected to be commercially available by the fourth quarter of this year, the label maker is now ramping up new high-speed manufacturing processes targeted at bringing at least 10 times greater throughput than current “flip chip” technology, said Robert Malchione, Avery Dennison Corp.s senior vice president for corporate strategy and technology.
Avery Dennison foresees a multibillion-dollar opportunity in RFID labels, even though “RFID technology [still] isnt foolproof” and “real implementation experience isnt widely available,” Malchione maintained, speaking at the recent Robert W. Baird & Co. 2005 RFID Conference in New York City.
“We are chip agnostic,” Malchione told the audience. Avery Dennison uses RFID chips from Texas Instruments Inc., Alien Technology Corp., Royal Philips Electronics, Symbol Technologies Inc.s Matrics, and other silicon makers in producing its labels.
After its new manufacturing processes are in place by the end of March, the company will keep building staffing and production yield throughout the year, according to the senior vice president.
Avery Dennison will continue to produce both “standard” and custom labels, Malchione said during his talk, which was also broadcast over the Web.
The label makers first target is the carton market, which Malchione said is being driven right now by the Wal-Mart and Department of Defense RFID initiatives. Pharmaceutical labels are another current priority.
Avery Dennisons recently created RFID Division is performing antenna manufacturing and inlay assembly for the RFID labels. Conversion of the labels for use with RFID printers is being handled by both Avery Dennison and third-party partners, Malchione said.
The companys new manufacturing processes will combine printed silver ink antennas, a “proprietary strap attach process” and vertical integration to help cut production costs, according to the Avery executive.
To help raise the accuracy of RFID read rates, Avery is putting a lot of effort into antenna design. Other improvements in Averys manufacturing and test processes are also geared in that direction. Avery holds considerable IP in the strap-attach process, Malchione said.
Averys RFID initiative is focusing first on North America, but Latin American and Asian resources will be added later this year. “We already have a handful of resources in Europe,” Malchione said.
For Avery, the timing of industry RFID initiatives seems propitious. In a presentation earlier this year at the Lehman Brothers 22nd Annual Industrial Select Conference, Dean Scarborough, president and chief operating officer, said that sales and earnings in office and consumer products—once a stronghold for the long-time paper label maker—have flattened out over the past four years. Scarborough blamed slowdowns in growth drivers ranging from printer placements to mass mailings.
Scarborough said that, also in the RFID space, Avery will target the retail apparel/footwear, automotive, and Department of Defense markets.
In financial results for the fourth quarter of 2004, announced in January, Avery Dennison reported sales of $1.4 billion, up more than 16 percent over the fourth quarter of 2003.