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

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)