China set-up pushes Rakon into red

20:33, Nov 14 2012

Rakon has reported a net loss of $3.96 million for the half year ending September 30, as it booked the costs of setting up lower-cost manufacturing facilities in China and India.

The NZX-listed company, which makes crystal timing devices used in electronics such as cellphone towers and smartphones, said last week it would cut up to 60 New Zealand jobs and save $10m in costs a year by moving manufacturing to the two countries.

Revenues fell 5.5 per cent on the same period last year to $89.4m, but were up by $6m on the preceding six months. Earnings before interest, tax, depreciation and amortisation fell 24 per cent year-on-year to $4.7m.

Managing director Brent Robinson, said the company had been building its position in several markets and investing in its manufacturing platforms to meet anticipated growth, which had meant the business incurred additional costs.

Its results had also been affected by a softer than expected telecommunications infrastructure market, he said, with operator spend down. But recent announcements that operators, such as AT&T, would begin building 4G mobile networks were encouraging.

Robinson said Rakon was well positioned in the market and beginning to see an increase in demand.

"We remain in a very strong position as a preferred supplier to the leading vendors of equipment for these networks.

"These new 4G networks will incorporate both traditional macro base station equipment and small cells. This equipment and associated backhaul investment will provide significant growth for Rakon in the coming years."

Robinson said growth in smart wireless devices, such as smartphones, had continued to be strong, which complimented its strategy.

China had surpassed the United States as the largest market for smartphone sales and Chinese brand names were taking an increasing share of this market.

"Rakon is a leading supplier not only to the well-recognised names but also to the leading Chinese brands. Rakon's RCC (Rakon Crystal Chengdu) facility is operating well. Capacity will increase with the planned movement of two high volume lines from NZ and additional new capacity in the new year," he said.

"Our manufacturing facilities in China and India are now well established which will enable us to reduce costs we have been carrying through the transition and allow us to improve earnings and continue to invest in growth."

In August Rakon issued an ebitda guidance of between $14m and $16m for the 2013 year. Robinson said that with the current prospects and orders being received Rakon should achieve a result within the range predicted.

Its shares are valued at 45c on the NZX. The share price has slid from $1.25 in mid-2011.