VDC: RFID plans could be affected by Philips spin off

By Control Engineering Staff August 10, 2006

Natick, MA — Philips Semiconductor’s plans to spin off or sell its semiconductor business by the end of the year presents both opportunities and risks for the RFID industry, according to technology market research firm Venture Development Corporation (VDC). “The new venture, whether it be a spin off or an acquisition, should continue to lead the market on a number of dimensions,” said Louis Bianchin, senior RFID analyst. “Philips’ market share and clout, as well as its recent C1G2 certification for its UCODE chips last December, position the firm for long-term success in the RFID industry.”

Philips Semiconductor stated in its 2005 annual report that it would pursue an IPO, but is also accepting bids from private equity firms. “All semiconductor products manufactured by Philips are included in this transaction, even RFID. The RFID IC business for the firm represents less than 5% of its total semiconductor revenues; however, in the RFID world, Philip’s share is significant,” says Bianchin.

Current VDC research places Philips Semiconductor as the overall leader in RFID transponder ICs, representing nearly 30% of the total transponder IC market. In addition, Philips RFID contactless smart card ICs have been selected for use in several countrywide e-passport efforts (representing up to 75% of total worldwide e-passport projects), and the firm has been instrumental (in conjunction with HP) in the facilitated adoption of the latest RFID global standards.

What will happen if Philips Semiconductor becomes privately owned? VDC expects opportunities to arise from the business being freed from corporate overhead contribution requirement assessment, especially if the new ownership looks to spin RFID out from the larger semiconductor business in time. Also, “the bold vision we have come to expect from Philips’ RFID business will be met more consistently with equally bold tactics in product, market and channel development,” said Bianchin.

Risks include new owners who may lack vision and limit the alternatives for the RFID general management team to unlock more value in the Philips IP, and organizational instability.

“In all likelihood the RFID business unit will face some turmoil, internally and externally, over the next few quarters as the uncertainty surrounding its future ownership, priorities and direction are settled. However, it is our opinion that the net result of recapitalizing Philips’ RFID business will be very positive for the industry, Philips staff and the new ownership,” said Bianchin.

— Renee Robbins , embedded sysetms editor, Control Engineering