RFID industry beginning to find right frequency in business world; Wal-Mart Stores, defense department pioneer new technology.

Wolf Bielas and his partners have needed plenty of patience while waiting for the market to warm up to their microchip-studded specialty labels.

Some predicted that 2005 would be the year when radio frequency identification, or RFID, technology took off. It didn't happen.

Same for 2006. Same result.

The calendar changed to 2007. "We came to the year with low expectations," said Bielas, sitting in a showroom of RSI ID Technologies in Chula Vista, where he is chief executive.

It turns out that 2007 "has been a decent year," Bielas said, saying the company reached its September goal in March.

Next year should be much better, he said, with a "hockey stick" turn in the sales graph during the third or fourth quarter.

RFID tags let a person pass a radio scanner over an object, or a pallet of merchandise, and get a signal back, identifying the contents of the pallet.

They are similar to bar codes, though they do not require line-of-sight access between the scanner and label.

The Department of Defense and Wal-Mart Stores Inc. were two of the earliest institutions that called on their suppliers to put RFID tags on merchandise. Since then, Best Buy Co. Inc., Albertsons and Target Corp. have called on suppliers to label their shipments with RFID tags--at least at the pallet level.

Bright Future

"This business is going to be very, very large," Bielas said, predicting $100 million in sales for RSI by 2011.

Bielas won't be pinned down on his current sales, saying only they are in the tens of millions of dollars. Such numbers aren't a part of public record because RSI ID Technologies is private. Bielas has two business partners: Nate Rubin, the company's chief financial officer, and Enrique Cohen, RSI's director of Mexican operations.

Still, people love to guess.

Promotional material from the city of Chula Vista's Community Development Department said RSI ID Technologies had grown to $10 million by 2006. One European analyst, Bielas said, predicted RSI would have $35 million in sales by 2007.

Bielas' tone of voice hinted that the number might not quite be on the mark, but he added that it might be a good number for 2008.

It's not unusual for business to double, he said.

Meanwhile, RSI is putting money back into the business. It recently doubled its capacity to make labels.

Before the recent boost in capacity, the bottleneck of the operation was the machine that placed microchips on the tags. To relieve that spot on the line, RSI ID bought chip-placement equipment worth more than $1 million. Now the chip-placement room can turn out 200 million tags per year.

For those people reading the San Diego Business Journal on newsprint, the microchips are scarcely larger than the period at the end of this sentence. They are affixed to antennas, which are printed with special ink on paper, plastic and other surfaces.

The antennas might be several inches across, and come in different geometrical shapes. Part of the company's creative effort goes into naming these designs. One imaginatively shaped X is called a Jumping Jack.

Different applications and different materials require different designs, according to company marketing materials.

Some RFID tags store a serial number. Other tags store a limited amount of information. Sometimes the tags have batteries, but often they work by picking up the energy from a scanner. The scanner does not need direct access to the radio tag; the tag merely has to be in range.

Some privacy rights groups and legislators are wary of people abusing RFID tags. They fear tags on objects can become associated with individuals, and that tag readers can therefore track individuals. It's an issue Bielas and his marketing manager, Robert Buntin, acknowledge they will have to face in the future.

The two compared serial numbers on items to license plates on cars. But typically, Buntin said, people do not have access to the Department of Motor Vehicles database.

RSI ID Technologies has several Fortune 100 customers, Bielas said, though most like to be low-key. Kimberly-Clark Corp. is one of the few big customers that have given permission to be identified. Some 70 percent of business goes overseas, Bielas said.

Day-to-day work at RSI includes engaging in price wars with competitors. The 5-cent label seems to be the unreachable ideal. RSI's competitors include Pasadena-based Avery Dennison Corp. and Silicon Valley-based Alien Technology Corp.

RSI markets itself as a vertically integrated label maker, offering antenna design, antenna manufacturing, inlay assembly (where the microchip is affixed to the tags) and finishing services. The company also provides help with tag readers and system integration.

RSI ID Technologies has 75 employees, spread among the Chula Vista headquarters and four locations in Mexico (including a Tijuana maquiladora). RSI will open a fifth Mexico location soon. The company opened an Argentina office last week and has an office in Hong Kong.

RSI has been in business since 1991. It has long offered traditional bar code labels. That side of the business is flat, Bielas said. RSI began its RFID operations in 1998.