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Rakon shares tumble to record low after guidance cut again

Shares of Rakon tumbled about 24 percent to a record low after the former local tech darling cut its annual earnings guidance for the second time since December, blaming increasing price competition in the smart device market.

The stock fell 9 cents to 29 cents, slicing about $17 million off its market value to $55.4 million. They listed at $1.60 in May 2007 and reached as high as $5.80 12 months later.

The Auckland-based company expects earnings before interest, tax, depreciation and amortisation between $5 million and $7 million in the 12 months ended March 31, it says in a statement. That is down from December's forecast of between $8 million and $12 million, when it cut its expectations from $14 million and $16 million.

"The downward adjustment comes as a result of the smart wireless device market's sudden and aggressive price reductions demanded of all key component suppliers," Rakon says. "The directors of Rakon are very disappointed to have to accept this downward reforecast."

It blamed the December downgrade on "a delayed sales programme in the high reliability and smart wireless device segments of its business, plus a forecast decline in margin from some consumer products".

The shares gained 2.7 percent to 38 cents in trading yesterday and have shed 32 percent in the past year. The stock is rated an average 'hold' based on four analyst recommendations compiled by Reuters, with a median target price of 40 cents. 

The company says its annual cost reductions of $10 million are still intact and it is still compliant with its bank covenants. Rakon held $32.9 million of bank debt and a $5.1 million bank overdraft as at September 30.

Rakon has reviewed its balance sheet in recent months, and it "will be the subject of actions to ensure it is properly aligned to a future for Rakon that allows the company to profit from its strengths", it says.

Last year, the company's board reviewed its assumptions for goodwill calculations in the first-half report, but concluded there was no case for impairment in the carrying value of goodwill.

For intangible assets, goodwill was calculated at $24.8 million, while the carrying value of its Chinese and Indian ventures totalled $13.1 million, as at Sept. 30.


Comments and questions

Nobody should be surprised on reading this ! The Board & Exec Director/s need urgent replacement.. which won't of course happen ! An absolute crock of s__t, and a disgrace to the NZ tech sector.

Close to $40m in bank debt and market cap $55m makes it hard to raise further capital to pay down debt , the banks will be making a call soon I suspect.

Watch the directors start to bail out soon - they will be running for cover and Mogridge will be the first to lose his nerve.

I might have thought that if Mogridge was going to quit something because he lost his nerve he would have left PGC sometime back.

An utter shambles. The FMA and SFO should be called in to closely scrutinise the bragging by management over their net asset backing in November to shareholders (oh - we're worth at least 80-90c per share!). This is arguably misleading the market now that only 3 months later they are dropping big hints about changes to NAV.

The Rakon press release is gobbly gook and would give a shareholder absolutely no confidence. It appears the bottom has fallen out of this market, price wise, and they weren't ready. I would suspect more bad news is pending and they are delivering it bit by bit.

You may have misread the communication. I suggests they are actually going to release some of that NTA. In other words we can expect some kind of action on the assets they have, in order to release some capital. Marking the stock down 32% on a tiny downgrade, already priced in by analysts, is nuts. Look at the balance sheet and you will see the value. Sure, it's been a disaster for investors and the board have lacked vision but this company is worth a lot more than $0.25. I'd say $0.50-0.60. (disclosure: I bought some stock today on the back of this analysis).

So Rakon has been unable to cash in on the boom in smart phones. Get out now if you are stupid enough to still hold. It's only going in one direction.

Check list for making money in the smart-phone market..
+ relevant technology
+ relevant price point/manufacturing model
+ global business abilities
+ competent board
Can't be that hard ??

Have the board announced any permanent replacement for the vacant CFO/COO position?

This role will be filled by Rakon's receiver !!

The problem is their technology is valuable, but they got everyone jazzed and drank the cool-aid.... guess what they are now priced at what they should be. The real issue is the monkey on their back in the form of debt which almost equals their whole market cap... With debt of 55M and EBITDA of only 5-7M,..?! This is going to get ugly quick...

I agree with Debs.

This company no longer has any sort of competitive advantage and will need to move its entire manufacturing to China if its to survive, probably already too late as their debt levels are too high, the original founders who have taken a lot of money off the table may need to put some of it back in.