We think Walmart does the gargantuan revenues it does precisely because it is better at IT and supply chain management than anyone else in its domain. Walmart is faster to adopt the latest retailing technology, like RFID.
An RFID tag is a small object that can be attached to or incorporated into a product, animal, or person. RFID tags contain antennas to enable them to receive and respond to radio frequency queries from a transceiver.
RFID is like a bar code, but better. A lot better.
As a data collection technology used to identify items, RFID saves companies like Walmart a ton of dough.
Since January, 2005, Wal-Mart has required its top 100 suppliers to apply RFID labels to all shipments. RFID enables better inventory control and customer management. For instance, on any given day, Walmart can tell you exactly what day a certain repeat customer is due back to the store, as well as what shampoo they're most likely to purchase.
Currently, the success rate for most RFID applications runs at 80% -- meaning, once the technology improves, Walmart's due to become even more efficient than it already is (hard to imagine, we know).
As much as Walmart has been villified for its sourcing practices and employee maltreatment, Walmart remains a prototypical example of operational perfection vis-a-vis emerging technologies.
The pure play on RFID providers is Symbol Technologies (SBL), which makes the cutting edge technology that enables companies like Walmart to maximize value from its customer relationship management systems.
As other retailers and governmental entities allocate more of their budgets to RFID, we believe that shares of Symbol will enjoy considerable upside.
While the stock is richly valued, Symbol's debt-free balance sheet and strong product line may help resuscitate the company out of the coma its former, terribly shoddy management put it in.
If Wall Street is overdiscounting the restructuring risks -- and cash flow remains robust -- we see Symbol's products becoming more ubiquitous and its shares breaking $15 in 2006.
SBL 1-yr Chart
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