According to Venture Development Corporation's recently released 2005- 2006 RFID Year-End Overview, the worldwide market for RFID systems exceeded $2.3 billion in 2006, with hardware accounting for nearly 59% of the total market. VDC anticipates nearly 35% growth (CAGR) through 2008, with total global revenues projected to exceed $3 billion by the end of this year.

The industry is ripe for consolidation. Current market conditions coupled with a highly fragmented and increasingly competitive market may encourage several vendors to implement exit strategies. The recent downsizing, 'rightsizing' and M&A activities are a harbinger of things to come for the next 12-18 months.

North America continued to represent the majority of RFID-related activity. However, the Asia-Pacific region maintained its position as a 'lead adopter' as seen in its continued integration of the technology for public infrastructure applications (i.e. ticketing, access control, etc). As the "manufacturing capital of the world" and one of the largest markets for technology, China will be a major driver for the growth of RFID in this region - as long as it is able to develop a set of interoperable national RFID standards. EPC UHF tag volumes were well below expectations in 2006; however, VDC predicts that this market will grow by nearly 88% through 2009.

Primary factors influencing the increased adoption of EPC UHF include:

• The introduction of EPC Gen 2 standard;
• The integration of EPC Gen 2 into the ISO 18000-6c standard;
• Increased availability of Gen 2 hardware and silicon; and
• Expected economies of scale and price reductions.

Although most of the RFID revenues generated throughout 2006 were derived from the transportation, automotive, and government verticals, significant growth is expected from the pharmaceutical, CPG, and health care markets, especially when item-level tracking (ILT) applications become more pervasive in 2008/2009. VDC predicts that the pharmaceutical industry will pave the way for high-volume, item-level tracking applications in regulated industries. Not only is the vertical expected to be a pioneer for item-level tracking, but it is also heavily integrated into other supply chains in other vertical markets such as CPG and health care.

VDC's end-user research indicates that the vast majority of firms (> 60%) whose supply chains intertwine with the pharmaceutical industry do not intend to implement ILT applications until there is a consensus on a preferred solution(s) from the pharmaceutical manufacturers. An extremely limited amount of ROI information is currently available to the public, and few suppliers, channel organizations or end users have been willing to discuss their ROI models or actual ROI data (i.e. rate of return percent, actual labor cost saving figures, etc). In VDC's discussions with vendors and channel organizations, an overwhelming portion of the respondents would only share this type of information with their current and potential end users - often citing effective ROI models and ROI testimonials as critical sales advantages. When enough RFID suppliers, value-adding distribution channels, and end users share their "real-world" ROI data with the industry, VDC contends RFID awareness and adoption levels will significantly increase.