Rakon a victim of high dollar - union

Last updated 13:45 06/11/2012

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The country’s largest union blames the high dollar for today’s news that manufacturer Rakon will cut 60 jobs as it sends more production to China and India.

It is a sign the crisis in manufacturing is deepening and follows repeated warnings from the business that the strength of the New Zealand dollar and its volatility were hurting, the Engineering, Printing and Manufacturing Union said. The kiwi is currently worth more than 82 US cents and has traded above US80c for most of the year.
“These redundancies are deeply concerning, not just for our members but for the entire New Zealand manufacturing sector. If even a high value, specialised manufacturer such as Rakon feels it can’t make a go of manufacturing in New Zealand then the sector is in real trouble,’’ EPMU manufacturing industry organiser Louisa Jones said.

“There are a number of simple steps the Government can take to support manufacturing if it would only recognise there’s a problem and begin to address it, starting with the high New Zealand dollar.

“New Zealanders want a strong economy that lifts our wages and gives young people a reason to build a future here. This will never happen until the Government gets serious about supporting manufacturing,’’ Jones said, adding that Statistics NZ figures show the manufacturing sector has 40,000 fewer jobs now than it did in 2008.

Rakon shares have come back from an initial 12 per cent jump on the production move news. They were trading up 7.2 per cent, or 3 cents, at 44c each shortly before 1pm.
Earlier today, the manufacturer announced a restructure that will see up to 60 New Zealand jobs cut as production is moved to India and China.

The Auckland-based maker of crystal timing devices used in electronics said the move would save it $10 million a year with 70 per cent of that in place by April.

Rakon reported what its chairman Bryan Mogridge called a "disappointing" annual loss of $420,000 in September and pleaded with shareholders to stick with the NZX-listed company.

Rakon CEO, Brent Robinson said he hoped the company's shareholders would see the "realignment" of its New Zealand operation as a positive step.

"It gives us an opportunity to further grow our business, we've got a lot of growth in the markets that we are addressing and this enables us to move those markets and business opportunities forward," he said.

Robinson said Rakon's New Zealand facility would concentrate more heavily on the company's growing research and development projects, but jobs would have to be cut because of a highly competitive market for smartphone components.

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Up to 60 of Rakon's 430 New Zealand employees are likely to lose their jobs, he said.

"We were hoping that we wouldn't be reducing our headcount here in New Zealand and we could offset it with high value telecommunications infrastructure but that's actually been quite a bit softer this year than we were anticipating.

"So it's meant we've had to cut back on projects were doing here and we've accelerated some of the moves to China."

One year on from the opening of its manufacturing facility in Chengdu, China, Rakon was using 20 per cent of the plant's capacity.

But that would now double in the next six months with the transfer of some crystal manufacturing capacity from Auckland.

Robinson said the Chinese expansion would be funded "partly from cashflow and partly from debt", although he said the exact cost was confidential.

Expansion of the "over-full" Indian facility would be paid for directly from the cashflows of the profitable Centum joint venture that Rakon holds a 49 per cent stake in.

Robinson said the company had been building its scale manufacturing platforms in India and China for some years, acknowledging their economies of scale and lower labour costs.

"The move also allows us to capitalise on significant global growth in demand for smart wireless devices. Our teams in China and New Zealand are also working collaboratively on a number of initiatives to reduce cost and improve productivity to further boost returns from this business," he said.

"Whilst it is very positive that Rakon is increasing market share in our target markets, we have to be realistic and accept it is not possible to sustain labour intensive elements of manufacturing activity in New Zealand for such globally competitive markets," Robinson said.

Rakon would continue to manufacture temperature compensated crystal oscillators (TCXOs) in New Zealand using its automated and proprietary manufacturing processes along with other high performance products. New Zealand also continues as the head office for the Rakon Group.

Robinson said Rakon will also realign its activities in the United Kingdom and France, with a small number of job losses that had not yet been decided.

- BusinessDay.co.nz

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