KEY POINTS:
Former market darling Rakon plumbed an all-time low yesterday after reporting a 66 per cent plunge in half-year profits.
Shares in the quartz crystal components maker fell as much as 45c, or 26.6 per cent, to $1.24 - well under its $1.60 May 2006 IPO - after it reported tax-paid net profit had fallen from $5.7 million to $2 million.
The company said its bottom line for the six months to September 30 had been hit hard by a rise in depreciation and financing costs, as well as a higher effective tax rate because of operating losses at its French factory.
Revenue was down 12 per cent to $79.4 million, while earnings before interest, tax, depreciation and amortisation fell 16 per cent to $10.4 million, largely as a result of weakening demand in a soft global economy.
In particular, revenue from the New Zealand business, which is largely focused on sales for consumer GPS products, was down 10 per cent in dollar terms, despite a 3 per cent increase in sales volume.
The company said the slowdown in consumer spending had largelyeliminated growth that had been expected in the second quarter of the year.
Managing director Brent Robinson said the drop in consumer spending was not unexpected.
"The demand is still there but obviously with this financial turmoil there's corrections taking place.
"We think that most of it's inventory correction at the moment, and orders are expected to return in the new year."
He said the deteriorating business environment would continue to affect the consumer-focused elements of its business, but Rakon was expected to maintain its position as supplierto the personal navigation device market.
And the company was well-placed to increase its market share in the traditional telecommunications market, due to its British manufacturing facility and a joint venture with India's Centum Electronics this year.
While operating losses in France have continued, and have been exacerbated by lower demand, the transfer of manufacturing capability to India is largely complete.
But the economic environment remains a challenge.
As a result, the company said it was freezing the salaries of senior managers for at least 12 months and deferring the construction of its Chinese joint venture factory by about six months.
The factory in Shenzhen had been expected to begin construction at the end of the year, but Robinson did not expect this to occur until April now.
Manufacturing in China remained crucial in Rakon's strategy of supplying componentry to first-tier phone manufacturers, he said.
"Sure there's been an economic slowdown and we've been affected by that, but GPS is a great utility going forward, and I believe there's lot of growth in GPS for Rakon yet."
Robinson said investments in businesses in Britain, France and India had also given the company diversification into the infrastructure market, and added new opportunities for growth.
Rakon shares closed at $1.25, down 44c or 26 per cent - the biggest share price decline yesterday in a market that was up 1.39 per cent.
