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Carlyle invests in ezpass company { July 15 2003 } Original Source Link: (May no longer be active)
http://www.washingtonpost.com/wp-dyn/articles/A56217-2003Jul14.html?nav=hptoc_tnhttp://www.washingtonpost.com/wp-dyn/articles/A56217-2003Jul14.html?nav=hptoc_tn
Matrics Secures Venture Financing
Group Investing $20 Million in Columbia Company Includes Carlyle
By Charles Duhigg
Washington Post Staff Writer
Tuesday, July 15, 2003; Page E05
Matrics Inc., a Columbia-based company specializing in radio-frequency identification technology, announced yesterday that it has received $20 million in financing from a group of investors led by venture capital giants Carlyle Group, Novak Biddle Venture Partners and Polaris Venture Partners.
The investment is the private company's third round of financing since it was founded by two former employees of the National Security Agency in 1999. Company officials and investors declined to disclose terms of the deal. The group includes 10 to 12 investors, many of whom previously funded the company, said Matrics chief executive Piyush Sodha.
For more than a decade, radio-frequency identification chips have powered such devices as E-ZPass, which drivers use to zip through tollbooths. Much like a bar code, an RFID chip emits a unique identification signal when scanned by a reading device. But RFID tags, which are paper thin and as small as a stamp, can be scanned from as far away as 20 feet, and hundreds can be done in a single second. Because each RFID chip is unique, a highway department can track individual vehicles on the road, or manufacturers can follow specific items as they travel through warehouses or are sold to consumers.
"RFID is going to cannibalize the bar-code market," said Brooke Coburn, managing director of the D.C.-based Carlyle Group. "Matrics has good technology, superb execution in bringing the product to market and good traction with Fortune 500 customers. This market is at an inflection point, and we think Matrics will emerge as a winner."
Although analysts eventually expect RFID to be used in consumer settings, Matrics now focuses on sales to companies managing large inventories through complex supply chains.
Delta Air Lines Inc., for instance, announced in June that it will test the use of RFID tags to track luggage on selected flights this fall. Matrics is one of two suppliers for the Delta test.
Wal-Mart Stores Inc. also announced last month that it will require its top 100 suppliers to use RFID tags on shipping pallets by January 2005. Matrics is expected to participate in that test, too.
Wal-Mart's costs associated with supply-chain management, including storing, transporting and keeping track of goods, are about 10 percent of overall sales, according to Ian McPherson of the Wireless Data Research Group. "RFID can reduce that cost by 5 to 6 percent by improving inventory knowledge and avoiding human error," McPherson said. Using Wal-Mart's 2002 figures as a model, that would amount to about $1 billion to $1.3 billion saved.
Another potential application that the company is exploring involves using RFID and sensors to track shipping containers, an interest of federal homeland security officials.
Matrics employs 45 people and outsources work to about another 20, said Sodha, the chief executive.
"We raised about $15 million at the end of 2001 and had more than adequate cash for the next 12 months," Sodha said. "But we decided we wanted to become more aggressive in expanding to other countries and in continuing to develop our technology. Our current investors wanted to invest more, so we decided to accept more financing."
The future success of Matrics, and the RFID industry, is, of course, not guaranteed.
Matrics's competition includes such technology giants as Texas Instruments Inc., Hitachi Ltd. and Koninklijke Philips Electronics NV, all of whom are competing to build low-cost RFID systems.
Presently, companies can produce RFID tags at 30 to 40 cents per tag, and scanners at $1,500 to $2,000 per unit, said Tom Pounds, vice president of corporate development at Alien Technology, a Morgan Hill, Calif., competitor to Matrics. "For this industry to meet its potential, tags and readers need to be produced at very low cost," Pounds said. Both Alien Technology and Matrics have patented technology they believe will allow them to produce tags and scanners at low costs.
Other obstacles are being raised by consumers concerned about privacy. The Italian clothing firm Benetton Group SPA announced earlier this year that it is abandoning plans to put RFID chips in some clothing lines after critics complained the technology could be used to track consumers and collect purchasing information. Benetton insisted it had no such intention, but it gave up on using the chips anyway. Earlier this month, Wal-Mart announced that it has abandoned a plan to test RFID chips in consumer items at a Brockton, Mass., store.
"There's a lot of positive momentum in RFID," Sodha said. "But getting the whole industry to adopt this technology in a large way is our single biggest risk. Standards, intellectual property, privacy issues, international differences -- all of these things are out of our control, but they impact the marketplace."
If everything comes together, though, in five years supermarket lines may be a thing of the past, Sodha said. The cost of a cart of groceries would be tallied in the blink of an eye, and "shoppers will see cheaper prices, better availability of products, automatic checkouts. For consumers this is going to be a big win."
© 2003 The Washington Post Company
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