Investment Trends With...

Mr. Chris Marangi
Vice President - Research
Gabelli & Company, Inc.

SecurityStockWatch.com: Chris, thank you for joining us today. Please give our audience an overview of your background and your role at Gabelli.

Chris Marangi: I joined Gabelli & Co, the broker-dealer arm of publicly-traded asset manager GAMCO Investors, in 2003 after stints in investment banking, private equity and business school. I cover stocks in a variety of sectors, including business services, security and media, but RFID is my baby. When I became interested in the space in 2003, we thought supply-chain RFID would be a multi-billion industry in two years. We are still waiting for those sales to ramp, but now it's not a question of "if" but "when". 

SecurityStockWatch.com: Which companies are you covering in the RFID space at the present time. Can we have a brief thumbnail on each?

Chris Marangi: Unfortunately, there aren't a lot of public companies for which RFID will "move the needle". I would start with the Big Four of RFID (every industry needs a Big Something). They are: Intermec (NYSE: IN), Symbol Technologies (NYSE: SBL), Zebra Technologies (NASDAQ: ZBRA) and Avery Dennison (NYSE: AVY). 

Intermec has been our favorite pick in the industry. Not only will it benefit from sales of its own RFID tags, readers and printers, it will also collect a royalty on virtually every piece of RFID hardware sold. This is as the result of a very successful licensing program (know as Rapid Start) that was concluded last year and could amount to as much as $100 million per year in profits for the company.

Next would be Symbol, which dominates the bar code reader business and which is leveraging those customer relationships to sell RFID tags and readers. Similarly, Zebra is the largest bar code printer maker and it is now selling printers that will both print bar codes and encode the RFID tags embedded in them. Finally, Avery Dennison is an old-line label manufacturer that is designing and manufacturing RFID tags and adhesive labels.

There is also a group of smaller companies for whom RFID will be a driver. In this category I would place Paxar (NYSE: PXR), an apparel tag and label maker that is having a great deal of success supplying British retailer Marks & Spencer with labels for its item-level tagging program, and Checkpoint (NYSE: CKP), a competitor to Paxar. Printronix (NASDAQ: PTNX) is in a way a "mini-Zebra" that supplier RFID printer/encoders. I also follow Sirit (TSX: SI), a small Canadian company that has some intriguing reader technology.

Finally, there are a number of large companies that participate in the RFID business, but for whom RFID will always be overshadowed. This would include chip companies Texas Instruments (NYSE: TXN) and Philips (NYSE: PHG). A number of other household technology names are also playing an expanding role in RFID. In following RFID, one also has to pay attention to the private (and perhaps one day public) companies like Alien Technology, Impinj and ThingMagic. 

SecurityStockWatch.com: What is your perspective on the market drivers for the RFID industry at the present time? 

Chris Marangi: Not to be coy, but there is one driver - Wal-Mart. We finally have a global RFID standard and a technology that works. Now we need the economics to work, i.e. low cost tags. To get from the current $0.08 to sub-$0.05 tag many believe is necessary for widespread adoption, the industry needs increased tag volume - probably greater than 20 billion tags per year. Wal-Mart, the world's largest retailer, handles over 5 billion pallets and cases each year. Wal-Mart has been a big supporter of RFID and has set a number of mandates for implementation by its suppliers. We think Wal-Mart will soon begin to accelerate and enforce those mandates, so that by 2008 the majortity of its pallets and cases will carry RFID tags. By that point, a number of other retailers and the US Department of Defense should be engaging in widespread tagging. By 2010, item-level tagging, i.e. placing tags on tubes of toothpaste, should be economical and further drive growth.

SecurityStockWatch.com: How about any barriers to widespread adoption and deployment. Can RFID tags be compromised? Transport viruses for example? Is privacy an issue with RFID technology?

Chris Marangi: To the extent that perception is reality, privacy is an issue. A number of consumer groups, and even some legislatures, have experessed privacy concerns. The industry needs to pay attention to this and educate consumers. The truth is there is probably little information useful to a thief and it is not easily obtained. The retailers themselves are probably more at risk than consumers in that there have been incidents of hackers altering prices on or disabling RFID tags. As with most technologies, the good guys need to stay ahead of the bad guys. 

SecurityStockWatch.com: What can you tell us about your RFID Conference coming up on September 15, 2006.

Chris Marangi: This is our second annual conference. We have nine presenting companies: Intermec, Paxar, Checkpoint, Nashua, Printronix, ThingMagic, ID Systems, Axcess International and Sirit. We expect to get an update on implementation in the retail supply chain and to explore some non-supply chain uses (sometimes called "closed loop") for RFID. 


SecurityStockWatch.com: Chris, many thanks for your time today. Are there any closing comments you would like to make?


GAMCO and its affiliates own approximately 1.7% of Intermec and less than 1% of the other companies mentioned. GAMCO has no investment banking relationships with the companies mentioned. The analyst owns no shares of any of the companies mentioned.