Smartrac Purchases UPM RFID; Claims No. 1 Spot for NFC Tag Supply
Netherlands-based contactless inlay manufacturer Smartrac has announced it is acquiring the RFID business of Finland-based UPM, making Smartrac the largest supplier of NFC tags, according to the companies.
The acquisition gives Smartrac–which bills itself as the largest supplier of chip-antenna inlays for electronic passports and contactless payment, transit and ID cards, by revenue–an expanded role in the NFC ecosystem.
The deal follows on the heels of Smartrac’s announcement Dec. 14 of a €24 million (US$31.3 million) acquisition of Germany-based inlay supplier KSW Microtec.
The purchase of the UPM RFID unit is a pure stock transaction that will give UPM RFID's parent, UPM-Kymmene Corp., a 10.6% stake in a holding company that controls Smartrac.
Christian Uhl, Smartrac’s chief financial officer, told NFC Times that while NFC tags represent only a small percentage of sales of the UPM RFID unit–and the NFC tag market is still in the pilot stage–Smartrac sees “great potential” in the business.
“This opens a whole new opportunity for selling transponders–we see that everyone will have an RFID reader in their pocket,” he said, adding: “It’s a very exciting perspective. I don’t know when this will become exciting from a volume perspective.”
Smartrac had sales of €180.1 million (US$234.7 million) in 2010, up 41% from the year before. After-tax profits were €6.1 million, an increase of 19.6% from 2009. The company produces inlays or transponders, which are contactless chips connected to antennas that are packaged for card and e-passport vendors to embed in their products.
Smartrac supplies the inlays, using chips it sources from semiconductor manufacturers, to makers of e-passports serving about 40 countries, including the United States. It also supplies inlays for contactless credit and debit cards manufactured by smart card vendors for banks in Europe and the United States, among other markets. Smartrac's inlays also go into keyless entry systems for automobiles.
The company produces some tags using the same high-frequency radio communication technology as is used by NFC tags. But with UPM’s RFID unit, it gets a leading maker of tags, both those using high-frequency communication, as well as ultra-high frequency–the latter often used for inventory tracking. Among customers for its tags is U.S.-based retail giant Wal-Mart. Smartrac also announced this month is was buying U.S.-based Neology, which is strong in ultra-high frequency market for tagging of vehicles and electronic road tolling, as part of a $30 million deal.
But UPM-Kymmene is mainly a supplier of pulp, paper and wood products, so the RFID tag unit has “little relation with UPM’s other businesses,” the company said in a statement today in explaining the reasons for the sale of the unit to Smartrac.
As part of Smartrac, the UPM RFID will have a better chance to grow, since it will complement Smartrac’s higher-end inlay business for contactless payment and transit cards and electronic documents, Marcus Vaenerberg, senior vice president for UPM RFID told NFC Times.
Early Lead in Tag Business
UPM RFID is believed to have taken an early lead in the market for NFC tags by supplying some handset makers with tags that the phone makers ship in the same box with their NFC devices. This includes at least one order by a phone maker–probably Nokia–for at least 1 million tags, NFC Times has learned. UPM also supplies a number of online sellers of NFC tags with their wares.
Vaenerberg confirmed that the in-box tags were the largest part of the tag business so far, but declined to confirm the 1-million tag order. He also declined to release shipment figures or revenue for the unit.
UPM competes in the nascent NFC tag market with U.S.-based Avery Dennison, a large supplier mainly of labels, packaging and office supplies, and also with U.S.-based Identive Group. The latter announced a 1-million-plus tag order from a handset maker in July, though declined to name the phone maker.
Update: Few estimates of the size or market shares of the NFC tag business exist, but U.S.-based ABI Research recently projected that the NFC tag market will be worth nearly $300 million over the next five years. The estimate is a cumulative over the next five years, taking in mainly NFC tags used for smart posters, service discovery, social-networking check-ins and infotainment and personalization.
John Devlin, senior practice director for autoID and smart cards for ABI Research, told NFC Times the recent acquisitions put Smartrac at the forefront of the inlay and tag business across a range of technologies and radio frequencies.
“This gives Smartrac a great economy of scale and the ability to provide a range of solutions to meet the growing need for contactless credentials, whether this is for ID cards, passports, bank cards, access control, transportation and ticketing, asset tracking, supply chain management, retail and apparel tagging, smart posters and NFC tags,” Devlin said. End update.
While promising, UPM’s Vaenerberg said large-scale growth of the NFC tag market is not a sure thing. After 15 years in the RFID tag business, UPM has seen other disappointments, he said.
“It might be, and I hope it will be, but we don’t know it would be for sure,” he said of the NFC tag business meeting its high market expectations. “Much depends on how many phone makers are really bringing those models out.”
Smartrac’s Uhl agreed that it is difficult to know when the NFC tag market will take off, but he added there are more and more proposed uses for NFC tags, including embedding in smart posters to enable users to quickly download content, and in accessories for fast pairing with other electronic devices.
Tags also could be embedded in luxury handbags, for example, to verify the goods are genuine when consumers or merchants tap their NFC phones on the bags, said Uhl.
“Pilot projects are taking off,” he said. “We see big chip manufacturers focusing on this. We see more and more phones have these readers.”
But he added: “We think it will take some time before people are actually using it.”