PowerFleet, Inc. (NASDAQ:PWFL)

The potential of radio frequency identification (RFID) technology application is beyond doubt as it has spread from traditional areas of shipping and logistics to retailing, pharma and health care. Its application in the field of monitoring and tracking has been growing over the years, with companies realizing the efficiency and cost competitiveness that they can achieve by implementing this.

I.D.Systems (IDSY) started of as a wireless monitoring and tracking product developer; later-on branched out into an integrated solutions provider. The technology used in these applications is RFID technology and is used to track, monitor and analyze high-value enterprise assets. The company focuses mainly on two business activity namely Industrial Fleet Management and Security and Rental Fleet Management.

Product revenue used to form a major portion of the total revenue, which of late is changing with substantial contribution from service revenue. For the nine-month period ended September 2006, service revenue increased by 166% to from 30% and product revenue by 37%. Net revenue increased by 60% during the same period. This increase in net revenue can be attributed primarily to the contracts that the company have with the U.S.Postal Service (USPS) and Wal Mart for both its product and service offering. Infact, these contracts have been the main stay of revenue for the last couple of years.

The market is very fragmented and no clear market leader exists as the technology and application keeps on evolving. Established names like Symbol and Intermac, although have a clear market share as they are up-to-date with the technological changes. IDSY is a small firm compared to these competitors. The competition is set of increase with new players like Sun Microsystem entering the fray and the consolidation in the form of acquisitions and mergers are on the roll.

The company bank on a few clients for its revenue and this model will falter, once players offering better solutions come into play. Also on the applications front the company has tied itself to industrial and rental fleet management with no attempt being made to explore newer areas. These factors put the company at a disadvantage and will affect the stock prices in the near future.