Philips Semiconductors will produce the chips themselves, which will initially be used to tag semiconductor wafer cases and carton packages within Philips Semiconductors' Kao Hsiung manufacturing site in Taiwan and the division's distribution center in Hong Kong.

IBM, meanwhile, will bring its services arm to bear, developing and adapting consulting, management, and implementation products to use the technology. The project started in November and will be fully live during the course of 2004, the companies said.

RFID uses a thin, uniquely-identifiable chip embedded within a "tag" to track inventory as it moves through the supply chain. Larger, "active" tags are typically used for tracking pallets of information; the active tags contain their own power supply and can transmit information farther than passive tags, which are smaller, cheaper, and can be read from a much shorter distance.

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