Price relief is coming for RFID hardware, but not for another year

RFID readers using the UHF band are among the most expensive purchases for companies complying with supply chain mandates from Wal-Mart and others. These companies consistently cite UHF reader costs as verging on the prohibitive. Why, and what will bring those prices down?

According to Sara Shah, an analyst with global research firm ABI Research, the typical UHF reader today costs $2,500-3,000. Unlike RFID label makers, says Shah, reader vendors are tight-lipped about the cost breakdown for a reader's components and production costs.

Lack of IC (integrated circuit) integration and low production volumes appear to be the main culprits in driving up prices. UHF readers are mainly used for supply chain management deployments. Today manufacturers buy off-the-shelf components and assemble circuit boards themselves. That's an expensive proposition, Shah notes, especially as these readers can be very complex.

That's why UHF reader prices are expected to fall dramatically in the medium-term, Shah predicts. Designers of the RFID readers believe that when integrated chipsets become available, prices will fall. According to information obtained by ABI Research, that is likely to occur late in 2006 or early in 2007, as semiconductor vendors become confident enough to make the large required investments in manufacturing.

When more RFID activities grow from small-scale trials to full-scale deployment, greater reader production volumes should drive prices down. Considering the number of companies being affected by these mandates, volumes should rise dramatically. "At this point," says Shah, "everybody agrees: 'volume is coming' but nobody knows when, so they don't want to move prematurely. Will first-movers have an advantage? Yes, but as prices fall, it may be short-lived."

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