This webcast presented by VDC Research takes you through the current and expected trends for AutoID-based (Bar Code and RFID) markets and applications. A particular focus is paid to Electronic Product Code (EPC)-enabled RFID markets & applications where facilitated adoption, deployment and scaling - in both new and emerging markets – is occurring due to increased innovation, commercialization and commoditization.

1. VDC Research WebcastRFID & Barcode: State of the Industry Prepared for GS1/EPC Global US AutoID & Transaction Automation Practice Tom Wimmer, Director Drew Nathanson, Director

2. VDC Research These slides are from a webcast presented on 9/27/2010. Copy of webcast and complimentary insights and data on the RFID & Barcode market available at: http://vdcresearch.com/market_research/autoid/research_reports.aspx Audio and copy of webcast available at: http://www.gs1us.org/epcglobal_us/education 1–  2010 VDC Research Group, Inc. AutoID & Transaction Automation Practice

3. Agenda Barcode Market Overview RFID Market Overview EPC RFID The EPC End User Convergence of Barcode & RFID Conclusions & Expectations 2–  2010 VDC Research Group, Inc. AutoID & Transaction Automation Practice

4. Barcode: New Applications, Imaging Drives Growth Increased demand for expanded value propositions and complementary and alternative solutions Barcode 2010 Integration of complementary technology and processes extends value of a highly penetrated and commoditized solution in late adoption phases Facilitated & Broader Adoption Facilitated & Broader Adoption Committment Committment Understanding Understanding Awareness Awareness Innovators Early Adopters Early Majority Late Majority Laggards 3–  2010 VDC Research Group, Inc. AutoID & Transaction Automation Practice

5. Barcode Demand Truly Global – Including Emerging While the Americas leads other geographic regions today, long-term growth prospects are especially promising throughout Eastern Europe and developing Asian markets. Suppliers are anticipating gradual shifts in regional demand and investing accordingly, establishing relationships with Original Design Manufacturers and distribution channel partners within these theaters of operation. Growth will be bolstered by increased demand in emerging country markets throughout APAC, Eastern Europe, and Latin America as manufacturing continues to shift from the North to the South and from the West to the East. This shift will create a ripple effect as the transportation and logistics infrastructure is developed to support this migration. This geographic expansion will be funded by the cultivation of a robust installed base in established country markets, enhanced by broader adoption among SMBs, and emerging markets/applications. 4–  2010 VDC Research Group, Inc. AutoID & Transaction Automation Practice Operations improvement drives adoption at home; Compliance drives adoption in emerging markets

6. Equipment Markets Dwarfed by Consumables Scanner suppliers are cautiously optimistic regarding near-term prospects because many deploying enterprises are demanding more from their data capture solutions than currently installed solutions can support. As the information requirements of deploying enterprises grow, the ability to decode 2D symbologies and complement legacy scanning solutions with image capture capabilities will spur increased investment consideration for imagers. As prices points for 2D imagers decline, this technology will increasingly receive investment consideration for the new applications and application extensions it can support. Barcode printer vendors are innovating to garner increased share of the consumables market (razors and blades) while helping deploying enterprises to reduce consumables consumption and associated expenses. At the same time, label and receipt paper converters strive to streamline the converting process while opting for more environmentally friendly raw materials. 5–  2010 VDC Research Group, Inc. AutoID & Transaction Automation Practice The need to convey more information is driving innovation across all product categories

7. RFID Expansion Deeper, Broader. More real? Solution moving to next phase on latest adoption lifecycle…this time it is broader, and deeper RFID 2010 Shift from Understanding to Commitment indicates beginning of broader and facilitated adoption Facilitated & Broader Adoption Facilitated & Broader Adoption Committment Committment Understanding Understanding Awareness Awareness Innovators Early Adopters Early Majority Late Majority Laggards 6–  2010 VDC Research Group, Inc. AutoID & Transaction Automation Practice

8. Fragmented RFID Markets Grow In Many Ways 7–  2010 VDC Research Group, Inc. AutoID & Transaction Automation Practice A number of powerful application clusters are driving growth in all three regional and product markets

9. HF, UHF Will Dominate Future Investment LF losing share to HF, EPC volumes to explode with item-level tracking LF continues to lose share to HF in many core applications such as security/access control and ID due to performance, application specifications, convergence with other applications and stronger global standards. The EPC market is exploding as item-level tracking, inventory control and supply chain applications scale, pilot-to-deployment times are decreased, and continued integration with legacy infrastructure occurs throughout the value chain. Additional longer-term momentum is also expected to be provided by emerging applications such as Automated Vehicle Identification and baggage handling. Although most of the growth in the HF market will come from smartcard–based applications such as contactless payment, e-Government and ID, significant revenue contribution is expected from other high-volume applications such as ticketing and library. 8–  2010 VDC Research Group, Inc. AutoID & Transaction Automation Practice

11. These companies have been funding pilots, with partners, and are expected to offer these partners the opportunity to grow with them.

12. In other words, much of the near-term growth will look like brown-field demand, not green-field.

13. That said, we expect that the horizontal growth opportunities will be healthy, if smaller in scope early on.

14. Account development lifecycles for these next generation green-field opportunities are not expected to take as long to develop as the current/ latest generation of large account/ program/project opportunities.Market Share By Account Type

15. Defining EPC RFID is Critical What is the Electronic Product Code™ (EPC)? An RFID-friendly encoding scheme that represents the same GS1 identifiers used with U.P.C. barcodes (for the identification of a specific instance or a type of trade item or asset). Defined by EPCglobal’s Tag Data Standard, it provides a bridge between legacy AutoID systems and newer solutions such as RFID. Supported by a suite of technical standards that are accepted and understood across industries – worldwide. Why is EPC important? It’s backed by a framework of standards to ensure that items are being indentified and their data is captured and shared in a way that all participants in the value chain can understand. Creates a common and cost-effective platform that can support application development, solution expansion and the integration of alternative or complementary technologies. Why do we need a standard like EPC? Standards are the foundation for clear, understandable exchanges between companies in an increasingly globalized economy. Without standards, business processes would be highly complex, especially for companies that manufacture products from a large number of components coming from different sources. The shoe example: No global standards for shoe sizes means companies must mark the same shoes differently for different countries and specify the right size references, which correlates to added costs typically passed on to the consumer. 10 –  2010 VDC Research Group, Inc. AutoID & Transaction Automation Practice

16. Integrated Global Supply Chains Drive EPC RFID Supply chain applications drive growth across all regions and throughout value chains EPC growth in the Americas region to be driven largely by supply chain and inventory management applications (i.e.: Retail, CPG, Government), as well as a burgeoning asset tracking industry. Although the EMEA region has been – and continues to be - a pioneering and driving force for supply chain management in retail/apparel/luxury goods, recent intelligence gathered during H2 2010 indicates that growth within the region’s EPC market, particularly the retail sector, will slow by 10-15% (from H1). Macroeconomic conditions creating unfavorable capital investment environment. Lower concentrations of early adopters in several emerging markets. Lead adopters indicating a slower-than-expected scaling of their deployments. As RFID moves further down the value chain, supply chain applications and source tagging are expected to provide significant growth for the APAC region as a result of a high concentration of manufacturing in support of global value chains. 11–  2010 VDC Research Group, Inc. AutoID & Transaction Automation Practice

17. Services Take Up Significant Market Spend Increased hardware commoditization continues to shift focus to software and services Professional services, particularly installation/ integration, will continue to account for a significant percentage of the total global EPC revenues over the next 5 years as these solutions continue to penetrate new accounts and markets and existing deployments continue to scale, expand and become deeper integrated. The passive transponder market is rapidly moving toward a consumables-based model – recurring high volume demand with increased price sensitivity and competition (and lower brand loyalty). Reader adoption remains strong for both stationary and mobile devices as infrastructure continues to be deployed to support new and scaling installations. Growth of OEM modules continues to be linked to continued integration with other devices and infrastructure. The role of the Software provider is becoming more core to a successful implementation as the hardware markets become more commoditized and commercial-ized and integration deepens throughout the value chain. Nearly 35% of all end users surveyed indicated that their software provider played an influential role in determining the hardware and/or service provider. 12–  2010 VDC Research Group, Inc. AutoID & Transaction Automation Practice

18. EPC RFID Core verticals continue to evolve and expand, driven by horizontal applications Although EPC RFID continues to become more horizontal, with applications such as supply chain, inventory control and asset tracking being implemented across a diversity of vertical markets, the solutions are also increasingly being evaluated and used in emerging and converging applications such as EAS and sensing/monitoring. EPC has witnessed unprecedented growth in the retail sector over the past 18 months, largely driven by the successful implementation and scaling of Item-Level Tracking (ILT) applications within the fashion/apparel, luxury goods, and “brand” markets. The high-percentage of limited-use tags in support of these ILT applications has been so great that capacity has become an issue – albeit a temporary one. Although the success in retail is expected to cascade throughout other integrated value chains, it is only a part of the EPC story in those verticals. For example, growth is also seen in a diversity of applications outside of retail: AVI, asset management, environmental monitoring and baggage handling in transportation Shop-floor, asset utilization, source-tagging, environmental monitoring and inventory control in CPG 13–  2010 VDC Research Group, Inc. AutoID & Transaction Automation Practice

20. Produce/Food products

21. Museums/Artifacts

22. Life Sciences/Pharmaceuticals

23. Shop-Floor Automation

24. Consumer Electronics

25. WIP

26. Automotive

27. CPG

28. Automatic Vehicle Identification

29. Parking stickers

30. Traffic control

31. Registration14–  2010 VDC Research Group, Inc. AutoID & Transaction Automation Practice

32. RFID Users More Committed The market understands and accepts the technology’s value propositions more clearly, more broadly and is committing resources to accessing the potential benefits of RFID. The view of RFID has expanded and sharpened …deployers on focusing on how the technology can and should be used in a number of applications and ecosystems. Decision making is shifting away from IT to collaboration with Operations and Finance, placing more emphasis on RFID ROI potential. Integration continues to deepen and the technology continues to converge with existing infrastructure(s). Pilots are converting to deployments and deployments are scaling/expanding – approximately 20% faster than the previous year. RFID spending for leading adopters is increasing significantly each year (from 2009-2011) across a diversity of application markets (i.e.: >100% in Retail). At the same time, revenue contribution from new accounts is expected to dramatically increase within the next 2-3 years. 15 –  2010 VDC Research Group, Inc. AutoID & Transaction Automation Practice

33. EPC RFID Investment Plans Are Being Funded Respondents that have invested more than $250,000 in 2009 are expecting to invest up to 6x more over the next two years in support of scaling their deployments and further integrating their solutions. The number of respondents that were using/ evaluating, but did not purchase in 2009 decreased by more than 50% in 2010, with most indicating that they will spend more over the next 3 years than all previous years combined. Approximately 60% of all respondents stated that RFID is a primary strategic investment for their firm over the next 3 years – an increase of nearly 20% over 2009. 16–  2010 VDC Research Group, Inc. AutoID & Transaction Automation Practice Pilot-to-deployment times to decrease; Significant scaling to begin Q4 2010 or earlier

34. Performance vs. Key Drivers Still A Bit Gapped Nearly 95% of all respondents cited leading RFID adoption divers that are not new; however, the same group of respondents indicated that their solutions and suppliers are not fully meeting their expectations. Enhanced operations and cost reductions have become primary drivers for EPC users, a trend complemented by a shift in decision-making influence from IT to Operations. Actionable business intelligence distributed to key decision-makers in real-time has become a critical component of many installations, adding complexity but increasing value … significantly. Compliance remains a critical adoption driver for many EPC deployments – a well understood principle for many vendors as this is one of the few areas in which the suppliers are more than meeting their customer’s expectations. 17–  2010 VDC Research Group, Inc. AutoID & Transaction Automation Practice Most important drivers remain rooted in operational improvement, information accuracy and security

35. Primary EPC RFID Applications Picture of health: concentration in key ‘killer apps’, a multitude of smaller market opportunities Although significant growth is expected for most applications, adoption of the following applications is expected to nearly triple by 2011: Anti-counterfeiting Authentication WIP/Assembly AVI Shop-floor Automation Sensing / Monitoring Even primary applications with higher penetration rates (for the survey population), such as supply chain, inventory control, and asset management, are expected to significantly increase adoption, with nearly 80% of all EPC respondents expecting to use RFID for these applications by the end of 2011. The convergence of RFID with other AIDC solutions continues to express itself in an increasingly wider range of applications, positioning RFID as an enabling technology and further establishing a footprint within these markets and installation environments. 18–  2010 VDC Research Group, Inc. AutoID & Transaction Automation Practice

36. ROI for EPC Solutions Continues to Improve 19–  2010 VDC Research Group, Inc. AutoID & Transaction Automation Practice Benefits beyond expectations and expanded value propositions

37. Convergence: When Standards Matter Most Why convergence? Investment in competing AIDC technologies varies. Simultaneous reliance on multiple technologies enables widespread participation, provides failsafe redundancy and increased security. Prevalent applications Cold chain Multi-modal data capture (e.g.: Barcode, RFID and Voice) within warehouse Luxury goods and apparel Pharmaceuticals AVI Over 75% of all EPC RFID Smartlabels deployed also have a barcode, and the infrastructure at nearly every read point within the retail supply chain is capable of supporting BOTH barcode and RFID. 20–  2010 VDC Research Group, Inc. AutoID & Transaction Automation Practice Supply chain participants rely on mature and emerging technologies; Standards enable trouble-free trade-offs

38. Conclusions & Expectations – RFID RFID is becoming more important – perhaps even a critical enabling technology Increased end user commitment – in established and emerging accounts Evaluation investments are increasing while time-to-deployment is decreasing Rapid scaling and facilitated adoption Convergence with other core AIDC solutions Deeper integration Continued application development and deployment as a means to extract more value Decision making shifting toward Operations – about the influence on the bottom line Continued positioning as an integral solution, as well as persistent efforts to extract more value, will not only stimulate demand for RFID in other markets, but will cause the technology to cascade throughout value chains – eventually becoming a more open-looped, end-to-end solution. As the market matures and RFID becomes more open-looped, converged and broader adopted, the demand for a more universal and streamlined solution will intensify; however, the price-performance levels will continue to shift as higher performing product is required in an increasingly price-sensitive market. 21 –  2010 VDC Research Group, Inc. AutoID & Transaction Automation Practice

39. Conclusions & Expectations – EPC RFID Total market for EPC RFID solutions to approach $260 Million in 2010 and exceed $3 Billion within the next 5 years – a CAGR of more than 50% … while still experiencing rapid commoditization and commercialization Reduced evaluation time periods and facilitated deployment and scaling – in both established and emerging markets and applications Continued shift toward a more universal and powerful solution Support for global value chains - reduction of regional barriers Deployed throughout the entire value chain Increased functionality (e.g.: higher memory, enhanced performance, more IC capabilities …) Integrated with other solutions/technologies (e.g.: EAS, sensing/monitoring, security/access control, authentication, anti-counterfeiting …) Enhanced security Emergence of new business models designed to provide the benefits of EPC while mitigating risk (to invest and deploy) Managed services Customizable OTS solutions Consumables-based market dynamics 22 –  2010 VDC Research Group, Inc. AutoID & Transaction Automation Practice

40. GS1 US Visibility Framework 23–  2010 VDC Research Group, Inc. AutoID & Transaction Automation Practice

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44. Notice of Copyright  2010 VDC Research Group, Inc. The entire contents of 2010 RFID & Barcode: State of the Industry are proprietary to VDC Research Group, Inc. (VDC) and may not be distributed in either original or reproduced form to anyone outside the client’s internal organization within five (5) years of the report date without prior written permission of VDC. VDC has devoted its best efforts to obtain for and provide to its clients as accurate data as is possible. Nevertheless, we cannot be held responsible for incorrect information provided to us byvendors, users, or others that we interview. Nor can we be held responsible for forecasts of the future evolution of an industry, which, in retrospect, proves inaccurate. Our goal is to provide the best possible analysis of an industry, utilizing data obtained through a time-proven and rigorous research methodology, for our clients to employ in developing strategies to compete in an uncertain and ever-changing business environment. TRADEMARK ACKNOWLEDGEMENT: Many names of companies, associations, technologies, products and product types, etc. mentioned in this report comprise Trademarks, either registered or non-registered, owned by various entities. These are too numerous to mention individually. VDC acknowledges that ownership of these Trademarks exist and requests that readers acknowledge this as well. 27–  2010 VDC Research Group, Inc. AutoID & Transaction Automation Practice