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6/25/2008
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Checkpoint Acquires Successful RFID Startup OATSystems

Despite high-profile deals with Airbus and Kimberly-Clark, OATSystems decides to no longer fly solo in the shaky market for RFID technologies.

OATSystems, a tiny company of 50 employees that makes software that turns RFID data into business information, has made a big name for itself though deals with Kimberly-Clark and Airbus. But even that success in the shaky market for RFID technologies isn't enough to go it alone.

Checkpoint Systems, which specializes in radio frequency tags that prevent product theft from retail stores, acquired OATSystems for an undisclosed sum this week.

The U.S. market for radio frequency identification technology in such areas as retail and consumer goods hasn't taken off in a way some hoped it would when Wal-Mart issued its RFID mandate several years ago, but European retailers have been much more receptive to RFID. OATSystems sees Checkpoint as providing it with entry into 30 countries where Checkpoint already sells products.

"It enables us to have a more global presence and global reach," said Paul Cataldo, VP of marketing for OATSystems, in an interview. With Checkpoint's $835 million in annual revenue last year, "we have a company behind us that's financially very strong."

More than 80% of Checkpoint's revenue comes from what's known in retail as electronic article surveillance. Checkpoint has long made tags than can be hidden inside a shoe or pricey garment that is picked up by a radio frequency reader at a store exit if not deactivated at the cash register. More recently it's expanded into RFID in an effort to help retailers better manage their supply chains, offering, for example, dual-purpose tags with an RFID chip that can be picked up by a reader for the simple purpose of article surveillance, yet also contain identifying information about the item for supply chain efficiency efforts.

Checkpoint has spent the past few years upgrading its hardware platform to support RFID, said Per Levin, president of Checkpoint's shrink management division, in an interview. "The missing piece of the equation in becoming a total solution provider was OATSystems' middleware or application layer," he said. "The have a unique skill in this and are the market leader." OATSystems makes an application that analyzes data collected by RFID to determine what's causing products to run out of stock, among several other applications for specific business purposes.

Together, the companies believe they can approach retailers with an RFID hardware/software combo. Although retail is Checkpoint's focus, OATSystems will continue to operate independently, with hopes of continuing to expand into industrial and consumer goods accounts based on its experience with Airbus, Kimberly-Clark, and other customers in those areas.

In April, Airbus inked a multimillion-dollar, multiyear software deal to use RFID technology to track parts and tools used in the manufacturing and maintenance of its airplanes. The new RFID software infrastructure -- based on IBM's WebSphere and Tivoli system monitoring software, and OATSystems' data analysis and asset-tracking software -- will let Airbus employees and systems exchange information collected by RFID readers. The infrastructure also will integrate RFID data with business systems such as Airbus' core SAP R/3 ERP system.

Among consumer goods companies, Kimberly-Clark is one of few that has made a significant and visible effort to work with Wal-Mart on improving supply chain visibility with the help of RFID. It uses software from OATSystems to help monitor the success of in-store product promotions based on data collected by RFID.

While RFID remains a fledgling technology, both Levin and Cataldo say they're convinced enormous growth opportunity lies ahead. The Airbus deal, Cataldo said, "was a tipping point" in a shift toward broader RFID adoption. Together, the two companies hope to grab a big chunk of what they see as a market still far short of its potential.

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