Rakon shares jump on news of manufacturing shift to China, India

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Rakon, which makes crystal oscillators used in smart phones and navigation systems, will cut up to 60 New Zealand jobs as it shifts more manufacturing to China and India in a bid to cut costs and widen profit margins.

Rakon shares (NZX: RAK) have jumped almost 10% this morning to 45 cents.

The Auckland-based listed company expects to lay off up to 14% of its local workforce as it shifts crystal manufacturing capacity to Chengdu, China, and expands capacity at its facility in India, it says in a statement.

The plan is expected to improve margins by $10 million a year.

"While 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 in NZ for such globally competitive markets," chief executive Brent Robinson says.

"We will continue to manufacture temperature compensated crystal oscillators (TXCOs) in NZ using our automated and proprietary manufacturing processes along with other high-performance products."

The job cuts come as government figures today are expected to show labour costs increased 0.5% in the September quarter and ahead of data on Thursday forecast to show 0.3% jobs growth in the same period.

National carrier Air New Zealand today said it was laying off 70 cabin crew after ditching its London-Hong Kong route.

Mr Robinson says it has been building scale at the Indian and Chinese facilities because of larger economies and cheaper 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."

The increased capacity in China will help the company build its relationship with Huawei Technologies, having recently signed a five-year $US56 million contract to quadruple sales to the Chinese telecommunications firm.

In August, Rakon said 2013 earnings before interest, tax, depreciation and amortisation are expected to be $14 million to $16 million in the year ending March 31, 2013, an improvement on ebitda of $13.1 million a year earlier, which was about half the 2011 result.

Rakon will keep its head office and most of its research and development in New Zealand.

The shares were unchanged at 41 cents yesterday and have shed 8.9% this year. The stock is rated an average "outperform", based on four analyst recommendations compiled by Reuters, with a median target price of 60 cents.

(BusinessDesk)


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22 Comments & Questions

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Surprise surprise ! Finally the Robinson's have woken up. NOBODY does this stuff other than in Asia !

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Wrong! Tait does it and it's a pity their managers aren't running Rakon

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Yeah. Send NZ jobs to China and India. That way more Kiwis are out of work so a couple of people can earn another million.

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If the Greens got in, they would force Rakon out anyway because of the weapon usage for their chips, So they are just making sure that the idiocy of some of our voters doesn't hurt the business.

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great news for shareholders, and asian manufacturers, not so great for their (now unemployed) staff and all the other industries that rely on their spending.... The economy is an ecosystem and needs to be nurtured by more than short term greed. Nothing exists in isolation. Perhaps this should be recognised in legislation that protects our economy instead of leaving it wide open...

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And how do you suggest we support uneconomic manufacturing?

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Yeah right- not! It was economical for 20 years. Its now all about fundamentalist capitalism, personal greed and the 1%. Great, we now don't manufacture anything in NZ to export but keep importing cheap commodities from China. We are destined to end up like "pigs". Renting in our own country.

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Harvey the way to support uneconomic manufacturing is to fire underperforming management and employ managers who perform

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play the same currency fixing games that china does so our exporters are always at an advantage... we are an exporting nation and our trade def is far to high

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Any intellectual property this company thought they owned or was unique to them will be sold out the back door in China and India and copied, products made in these countries have little perceived value to the rest of the World. They should capitalise on the NZ-made issue and demand a tax break from the government to stay here.

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What you're saying doesn't seem to apply to Apple's products, nor it would seem to be of concern to Apple's stock-holders !!. It's a matter of capitalising on relative strengths whilst protecting IP !! NZ taxpayers HAVE NO APPETITE for supporting flawed business models.. nor in this case do Rakon's non-family shareholders.

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You cannot protect IP in these countries and if you have proprietary IP dont go there its widely known personnel working at Apple in China sold trade secrect to Samsung , hence the lawsuit and Apple cannot use some brands in China due to somebody in China registering some Apple trademarks, hence another lawsuit Apple lost.

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My point was around your claims regarding products made in China and NZ taxpayer subsidy. That you've chosen to ignore such by making jumbled generalisations regarding IP and trademarks, futher dilutes your credibility in these matters !

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The IP and trademark dispute is public knowledge and a billion dollar judgement was entered against Apple,in China then Apple sued Samsung and won a bilion dollar judgement for Samsung copying their products so get your facts right and its your ignorance that destroys your credibility.

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I thought Samsung was already the main manufacturer of Apple components? They did not need anybody to sell them the technology.

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Wrong - they don't own the IP - they manufacture it, and in case you've been asleep for the last year they were just fined billions for having stolen their client's IP

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I feel sorry for the workers about to be laid off, but for the company and shareholders this is a good move. However, this move should have been done years ago.
The management and board are a case study for how to destroy shareholder value and failure to import new ideas and thinking. By introducing new board members, very little has and will change. The Robinson brothers must stand aside for new blood to come into the company. Sound harsh? They have had years to try and right ship, I have lost count on how many times Rakon has missed it"s own guidance....and after years of poor performance they have only recently decided to freeze their salaries.....a move that should have been made a long time ago.

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Why would NZ tax payers subsidise a failing business model, the board and Robinsons have been taking shareholders for a ride for far too long, over inflated salaries for an under performing company!

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So called 'high value manufacturing' is probably no more than glueing together components and putting them in a box.

The money is in designing and marketing the products. We keep that, and ship off the glue-sticking and box packaging jobs to Asia, so that Rakon can focus on design and marketing.

Suggestions like Taxpayers propping up uneconomic parts of Rakon are madness. Share price is up, Rakon's products will be cheaper and should lead to higher export revenue.

The box packers employed in Auckland will find jobs doing the next best thing, as has been the case since the first industrial revolution. As a nation, we are better off. Our labour productivity has just risen a tiny notch.

Ludites, dregs, Greens, Environmentalists and Unionists don't like this cycle because its not convenient for them.

This uncompetitve, interventionist socialist streak that runs through NZ is the reason why we have fallen behind Australia. And yet people still want to vote Labour/Greens to tax, regulate and print our way to fortune and riches!

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good move , lets just hope the business overseas can keep expanding. I do feel for there share holders, it is about time they see something postive happening

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Next up, F&P manufacuring jobs.

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Most of F&P Appliances manufacturing jobs are already offshore, and have been for some time.

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