RFID Tempts, but Opportunity's Elusive

Another oft-cited named is Zebra Technologies, which has parlayed its dominant position in bar code printing to become an early leader in the RFID market. Zebra is a favorite of Piper Jaffray senior analyst Brian Gesuale, who believes Zebra's RFID revenue should grow from far less than 5% of sales today to 10% by late 2005 and 15% by 2007.

However, investors may have already missed Zebra's run. Its shares have soared to more than $80, up 64% from their 52-week low.

Gesuale's retort: "It's a stock that is perennially expensive but continues to go higher."

In software, companies like Manhattan Associates, SAP and Retek are likely to have an advantage over RFID start-ups. That's because they already have a major place in retailers' operations, and such customers are more inclined to expand with their current vendors than add new ones, Ginsburg said. But AMR's Lundstrum believes software vendors won't see any meaningful opportunity from RFID until 2007 or 2008.

Notably, Fulcrum analyst Alan Weinfeld isn't including any revenue from RFID in his financial estimates for either Retek or Manhattan Associates in fiscal years 2004 and 2005.

Still, Weinfeld suggested Manhattan, which has positioned itself as an early leader with its "RFID in a box" product, is a sort of call option on the technology. Manhattan is working with 30 Wal-Mart suppliers moving toward complying with the retailer's RFID mandate, according to the company.

But Manhattan, whose major customers included beleaguered Kmart(KMRT Quote), has a mixed past, having lowered guidance for three consecutive quarters in 2003. More importantly, RFID revenue remains small -- only $500,000 from five small deals last quarter.

At only 10 times his 2005 earnings estimate when excluding cash, Retek's valuation offers better risk-reward than Manhattan, Weinfeld argued.

"No one has given Retek any credit for its warehouse management system, which is totally RFID-enabled," said Weinfeld, noting Target is among Retek's major customers. He believes Retek's shares should double within the next year. (Weinfeld's firm doesn't do investment banking.)