Will Ti Make A Bundle On `Smart' Packages?

Texas Instruments Inc. has found new savvy--in Savi Technology Inc. If TI can use its chipmaking expertise to lower the price of the nifty package-tracking device Savi makes, according to Marian L. Jeske, a consultant at Landover (Md.)-based Texcom Inc., "this would really revolutionize the whole distribution business." She knows because she works closely with one of the Big Three auto makers on distribution issues.

TI announced its purchase of Savi on Nov. 15. The privately held company in Mountain View, Calif., had 1994 revenues of roughly $15 million. While terms weren't disclosed, the price tag is almost incidental to TI.

PACK OF CARDS. With Savi, TI is getting an innovative system that was originally designed to turn the world into a virtual warehouse for the Pentagon. Early this year, the Defense Dept. handed Savi a $70 million, three-year contract for a system that will enable military top brass to pinpoint the location of every plane, ship, and tank--and of every cargo container engaged in shuttling spare parts to repair depots or ammunition to military bases around the world. The Pentagon calls it Total Asset Visibility. The key is a box that's about the size of a deck of cards stuffed with computer chips and a two-way radio. Dubbed SaviTag, these digital ID tags hold information about the container's contents, destination, and schedule--and they periodically send reports on the container's progress back to a Pentagon computer.

TI is betting that the civilian market for the Savi system will be huge, mainly because it can help suppliers assure just-in-time delivery of parts to their customers. It can even track packages or products inside warehouses. What sets Savi's approach apart from rivals, claims Savi President Robert S. Reis, is that its tags are "active systems," while other silicon ID tags are passive. That means if a SaviTag is attached to a cargo container that gets stuck in a shipping yard or a traffic jam, the chip is able to take action--including rerouting itself via a faster mode of transportation. "Our containers can kick the system into being more efficient," he says.

In commercial use, the SaviTags will communicate with the outside world mostly through existing cellular-radio systems or new short-range "interrogator" computer-radios that Savi will install at the 350 intermodal hubs in the U.S. where containers get switched back and forth between railways and asphalt. The tags can also be outfitted to communicate directly with satellites and use the global positioning satellite (GPS) system to plot their location. But Reis expects few customers except the Pentagon to opt for this, since the power required can quickly drain the tags' batteries.

TI plans to get rid of the main barrier to wider use of the Savi system: Each SaviTag currently runs about $40. That's half as much as two years ago, but still too much for many companies, given the volumes needed. Jeske says her Detroit client uses 100,000 containers just to ship its windshields. But Lawrence G. Schmidt, senior vice-president of TI's Systems Group, which accounted for 16% of TI's $10.3 billion revenues last year, is confident the tags can be made smaller and cheaper. He hopes that by next year, TI may even shrink the system to a single chip, an antenna, and a battery. If so, the price might drop to as little as $10.

MISSING CONTAINERS. The first big market for SaviTags, says Reis, will be long-haul intermodal containers. Today, sending one of these truck-size boxes coast- to-coast costs one-third to one-half as much as the $6,000 that a truck shipment runs. Yet the railroads' $5 billion intermodal distribution business pales beside the $345 billion trucking industry's. The reason: At hubs where intermodal containers switch from rail to truck to rail, they often get lost or delayed. Cross-country intermodal transit can be as fast as the four to five days that a truck takes--or up to six times as long.

TI figures SaviTags could help end the uncertainty. "World-class manufacturers today have pretty solid just-in-time operations within the walls of their buildings," Reis says. But, he says, "companies are waking up to how much cost they're incurring outside." TI's Systems Group believes it has the technology to cut those outside costs--and carve out a nice nondefense market in the process.

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