Rakon shares up 20% on $US56m contract with China’s Huawei
UPDATE: Rakon shares [NZX:RAK] jumped more than 20% as the market opened, and mid-morning were trading up 19.1% to 50c.
Despite this morning's jump, the company is still well off its 52-week high of 86c, and it's all-time high of $5.50.
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Rakon, the communications components maker which dropped out of the NZX 50 Index in June, will today sign a letter of intent with Huawei Technologies, quadrupling its sales to the Chinese-based company to $US56 million over the next five years.
Huawei will use Rakon's frequent control products in its handsets, smart devices and infrastructure programmes. A signing ceremony will be held at Wellington's New Zealand Trade and Enterprise office.
"The letter of intent recognises the greater scale and breadth of our product range, validates our commitment to a strategy of globalisation and our investment in operations in China," managing director Brent Robinson says.
The high New Zealand dollar and weaker demand from the telecommunications industry has weighed on Rakon's earnings.
In May, the Auckland-based company's full-year earnings before interest, tax, depreciation and amortisation fell 47% to $13 million including a share of ebitda from associates and joint ventures.
Shares in the company last traded at 42 cents and have shed about 51% over the past year. They traded as high as $5.50 in November 2007.
Banned in Australia, encouraged in NZ
Trade & Enterprise brokered meetings between Rakon and Hauwei as the Auckland company sought to restablish its business with the Chinese giant.
The government agency's role in giving the deal a helping hand could raise eyebrows across the Tasman.
Earlier this year, the Australian government, acting on advice from its top security agency, banned Huawei from bidding on contracts for the National Broadband Network (NBN).
It also opened an investigation into a proposed Huawei cable between Perth and Singapore.
The New Zealand government said it was monitoring the situation, but had no qualms about Huawei's involvement in various elements of the $1.35 billion Ultrafast Broadband (UFB) rollout.
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Comments and questions16
Letter of intent?
Might as well hand over the IP and market to the Chinese!
Well, I guess its good news though we don't know how much money they make from this (could be a loss leader to gain marketshare), and then there is the matter of managing the currency risk, which Rakon isn't very good at.
too many dodgy personalities
Headline in 5 years: "Rakon loses market share due to influx of cheap Chinese components"
Rakon is supplying components to Huawei - e.g GPS stuff for smartphones
Who is supplying to Apple, Samsung, Nokia and HTC.
Huawei is not a big player in the smart phone market relative to those 4 above.
...and the components will end up being copied, and prices and quality undercut.
to me, LOI is 3 strips of toilet papers.
With this kind of negative cynical attitude towards exports of high tech products, we might as well turn out the lights and close down NZ!!!
Lindsay,
There is not a negative cynical attitude towards exports of high tech products.
There is cynicism towards Rakon, who have mismanaged currency in the past and let down the market on corporate expectations. Weakness on the Rakon board is also a consideration.
It would be nice to see Rakon regain some of its former lustre.
High tech? Hardly as what Rakon produces now is a commodity! Rakon had a great lead a few years ago and squandered it through mismanagement.
Huawei will now use the LOI to squeeze a better deal from another supplier - watch this space.
Anyone who deals with the Chinese will tell you that a LOI means nothing! In fact, no self-respecting company will announce a LOI and will negotiate the real deal before announcing it.
Are the directors of Rakon so naive or are they simply desperate for something to show that they are doing something?
What's "high tech" about helping a Chinese company who provides the infrastructure to steal other's intellectual property? Imagine the whining if Rakon finds it's products banned from other markets. What goes around comes around.
Poor Lindsay
You obviously have not dealt with people in the real world. LOI in Asia is nothing. Everyone can write a LOI. LOI to the buyer = more free lunches, more free drinks, more free dinners, more free trips and last but not least, more price negotiation (aka cheaper pricing). That price of 56m might turn to half or less. remember, that is revenue, and then what about the cost?
You forget that Rakon is already in China, having built a $45m factory right opposite Foxconn in Chengdu. They have production facilities in India and France as well. If you read the annual report, you will see they are still innovating at the sharp end of the market and across a range of product lines. The last few years have been tough but there has been a lot of investment in new capacity and this will bear fruit over the next few years. I would expect the board to make some more changes over that time also. This is the type of company every man and his dog is screaming out for in NZ but, like most, will eventually be bought cheap and shifted overseas. Then we can go back to consuming on our credit cards!!
I dont see too many other Companies out there signing deals in this field or of this size,mind you thats probably as there are not any other Companies with Rakon's abilities and history in this field.Negativity.........its a Kiwi trait.knock Knock who's out there with the $$$s.
Hang onto your horses here.
Are you aware of the history of mismanagement at Rakon?
Are you aware of the promises made and undelivered?