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.