Rakon cuts earnings guidance again, matching market expectations

Former local tech darling Rakon has cut its annual earnings guidance for the second time since December, blaming increasing price competition in the smart device market.

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 Rakon cut its expectations from $14 million and $16 million.

The new forecast brings the company in line with analysts surveyed by Reuters, which is picking ebitda of $6.3 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."

Rakon 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.

Rakon shares reached $5.80 a May 2007, a year after its listing.

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.

It 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 September 30.

(BusinessDesk)