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Tuesday, July 25, 2006

IPO Watch: Alient Technology (RFID)

Alien Technology (RFID), a radio frequency identification products company, is set to price its IPO this week. It looks like it is 9M shares at a range of $10.00 to $12.00 from Bear Stearns, Cowen & Co, Thomas Weisel, R.W.Baird, and Advanced Equities. There has not been much talk on how this will price or how well the demand from institutions has been, but this was one of the hot IPO's to watch back before our mini technology meltdown.

Here is the most important thing to note: Whoever "wins" in the RFID market will be huge. Most likely it will be one of the public companies that are already making in-roads in RFID. But there is an issue. We have not yet had a single pure-play IPO successfully (or even unsuccessfully) make it to a formal IPO pricing. If this prices and does remotely well you can bet what you are sitting on that more RFID companies will follow.

This particular company touts its military and homeland defense supply chain, and the applications extend far beyond. This has been on the IPO docket since April of this year and proceeds of up to $120M were the initial filing, with all shares from the company. The company has been planning an IPO for well over 1 year. In 2004 Alien lost $53 million on revenues of $20 million. It has raised over $200 million in venture capital.

This company is involved in a lawsuit with Intermec (IN) on patent(s) and intellectual property and it should just be expected right now that almost every company that even tries to raise its head in this sector is going to potentially have dozens of lawsuits on their hands. That will be the cost of doing business, and it should be known that NO ONE has yet to solve this on a wide scale application basis that will account for the $100 Billion market potential.

Right now it is bar-coding that still runs most things on a retail basis and even in a warehousing basis. Zebra Tech (ZBRA) is the pure-play behemoth in Bar Coding and its stock looks horrible after a long slow steady decline where it has been cut in half over the last two-years. Zebra has most of the bar coding printer business and claims to have RFID printing as well, but they have a long way to go.

For RFID tags to dominate and be the holy grail of supply chain monitoring, the cost has to approach $0.01 to $0.02 per tag for this to become a true blue replacement for barcodes on a retail basis. The tags available on the market is NO WHERE NEAR that right now. They also have to essentially be able to be scanned on a burst or monitoring basis in a fixed area that can account for hundreds of thousands of these or more, and the available market is NO WHERE NEAR that either.

There are many other behemoths in the industry including the likes of Symbol Tech (SBL), IBM (IBM), Checkpoint Systems (CKP), and many others.

Jon C. Ogg
July 25, 2006
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