Fran O'Sullivan: Smart time for Rakon to tell the full story

Smart bombs are smart business: that is one interpretation of the sharemarket's reaction to the revelation that newly listed Rakon aims to dominate the lucrative and expanding guided munitions and military positioning market within five years.

The Auckland company has been supplying crystals and oscillators for some time to a major United States firm for use in the GPS systems that guide smart bombs.

But it kept quiet about the full extent of its ambitions, which were not revealed until excerpts from the business plan were disclosed on Saturday.

The Weekend Herald's investigation exposed Rakon as obfuscating when executives last year disclaimed any knowledge that its technology products were being used by the United States to ensure accuracy in weapons delivery.

Rakon's internal documents, unearthed by investigative journalist Phil Taylor, raise questions on how transparent the company has been with Government agencies and the public. This is especially so over its responses to questions about the ultimate use of its technology.

For a technology company which has just listed on the NZX and which sports a raft of top-class New Zealand directors, the story could not have come at a more sensitive time.

But, ironically for Rakon's critics, there is considerable upside from the disclosures.

Technology investors, who tend not to be in the vanguard of anti-military activism, are a savvy lot.

The company made a strong trading debut when it listed earlier this month, with shares trading about 50 per cent above the issue price.

Rakon's share price has continued to climb as investors take on board the fact that the company is well-placed to benefit from its links with a major US defence supplier.

Its only real concern is the need to keep the confidence of its client - Rockwell Collins - which contracts Rakon to supply the devices and has asked the company to produce even more advanced nuclear-hardened products.

If Rakon can ride out this imbroglio, it will be well placed to post large profits as it capitalises on its first-mover advantage.

Greens MP Keith Locke may not like to hear this.

But the more he bleats, the more likely it is that investor sentiment will swing behind the company.

Investors are not stupid.

They will have figured out that smart bombs are designed to save human lives, not kill millions of bystanders.

Their use in recent conflicts has enabled the US military to more effectively target the declared enemy.

Smart bombs are not weapons of mass destruction. They save soldiers' lives as well, including potentially those of New Zealand's SAS in Afghanistan.

The United States may be using them in Iraq but they should not be read as being on the same level of destruction as the gas attacks of former Iraqi dictator Saddam Hussein.

Investors should not lose sight of this as politicians like Locke and his fellow travellers, who demonise the application of science to other areas, such as genetic modification of crops and animal testing, seek to make political capital from Rakon's discomfort.

Prime Minister Helen Clark now wants answers on whether the company should have sought explicit approval for the export of crystals and oscillators used by Rockwell in GPS systems to guide smart bombs.

Her position runs counter to her initial reaction to the Weekend Herald report, when she played down the fact that Rakon had not sought specific clearance to export its product. It was Clark, after all, who was photographed with Rakon's top brass when it was awarded Exporter of the Year.

National Foreign Affairs spokesman Murray McCully is hanging fire until he sees the outcome of the Government's inquiries. He suggests Clark is using the affair to create a diversion from Labour's poll rating collapse.

That may be so.

The crystals and oscillators Rakon makes for GPS applications are not on the list of prohibited exports.

The Government has to ensure the spirit of the law is upheld, but Clark's previous comments do suggest some sympathy for the company's plight.

The PM will also be facing pressure from Rakon shareholder and director Peter Maire, who bought a major stake last year from the Robinson family founders.

Maire has street cred and, importantly, is a leading GPS innovator himself.

It will not have escaped notice that Navman - the company Maire founded - was given a boost from Government funds in Labour's first term.

Maire is also a member of Clark's Growth and Innovation Advisory Board (which promotes economic growth) and describes Rakon as New Zealand's only technology company.

It seems unlikely that the Government will come down too hard on Rakon as its products appear to be used solely for conventional - smart bomb - delivery systems at this stage.

Clark will also be weighing whether she wants to upset this country's delicate relationship with the United States at a time when her ministers are endeavouring to get this country back on side with the super power's military might.

But there are questions, nevertheless, that should be probed at another level.

The Weekend Herald investigation has put into the public eye far more about the company's ambitions than could be derived from reading its prospectus.

This concentrated on the huge potential for its crystals to be used in the 500 million to 600 million mobile phones made each year, as well as the 70 to 80 million cars. The revelations that it also aims to dominate the lucrative guided munitions and military positioning market within a mere five years should be the subject of questions from the NZX as to whether the market has been fully informed over Rakon's plans.

Rakon could have listed on the London exchange but chose the NZX as its primary listing.

It is using the float proceeds to expand its production capacity. But Rakon has also talked about outsourcing major productive capacity to other countries.

Those factors should not stop the NZX from having a quiet chat with Rakon about its overall intent.

So far it's been the Robinson family - which founded Rakon - which has been mounting the company's defence.

Rakon should also wheel in new chairman Bryan Mogridge and get him to do some serious fronting.

The company's ambitions do not necessarily run counter to New Zealand's interests, despite Locke's hysteria.

However, behind the furore, there's a good story waiting to be told.