Rakon chief executive Sinan Altug says Apple’s satellite play is an opportunity for his company - and that the war in Ukraine is not.
Altug - whose firm has previously copped protests because of the military applications of some of its guidance technology - told the Herald, “Inthe opening days of that conflict, we stopped supplying the few customers we had in Russia - who were all on the commercial side, not the defence side.”
Although his firm’s aerospace and defence revenue jumped by a fifth in the first half, the impact of the war in Ukraine was “not material”.
Looking ahead, Altug sees telcos’ 5G rollouts around the world as the strongest area of growth. Telecommunications networks now represent more than half of Rakon’s revenue, following a multi-year shift from high-volume, low-margin consumer products (such as components for iPhones) to infrastructure.
Since the strategic shift, early customer Apple is no longer a Rakon client - but Apple’s recently launched SOS satellite service plays into Rakon’s current strategy.
Altug says Rakon “dominates” the market for emergency beacons today. Earlier this month, Apple went live with its SOS-by-Satellite service, which lets any iPhone 14 outside cellular range contact emergency services via satellite. The service is initially US-only, but will be extended to other territories.
“In a few years, I believe every smartphone will be an emergency beacon,” Altug said.
On the face of things, that doesn’t look good for Rakon’s line of business supplying components to the makers of traditional beacons.
But Altug says the new opportunity is much larger. Apple is using Globalstar’s low Earth orbit satellite network for its new service. Today, Globalstar has a handful of satellites covering North America, but it plans a global network - and has become Rocket Lab’s largest single customer with a multi-year US$143 million ($228m) contract.
The Rakon boss sees the rapid growth of low Earth orbit satellite networks as an opportunity for his company.
Earlier today, Rakon reported a 15 per cent fall in net profit to $16.0m for the six months to September 30, but stuck by its full-year guidance.
Shares fell 6.1 per cent to $1.20 (for a $282m market cap) in late trading.
The profit slip was blamed on higher tax expenses (unlike a year ago, the firm could not use accumulated losses to offset its IRD bill,) plus a $4m increase in operating costs tied to an inflation-fuelled increase in labour costs, plus long-term share incentives to retain staff.
Rakon said full-year underlying ebitda would be in the range of $38m to $44m, a slight lift from the $34m-$44m guidance it gave in August (both figures are below FY2022′s $54m).
First-half underlying ebitda increased 6 per cent to $28.1m, helped by exchange rate gains.
The Auckland-based maker of advanced frequency control and timing solutions - used in everything from 5G telecommunications gear to defence aeronautics, low Earth orbiting satellites and data centres that need to keep exact time - saw revenue rise 2 per cent to $87.2m.
Rakon no longer made hay from rivals’ pandemic chip shortages (a key revenue driver in FY2022) but the decline was offset by increases in other areas.
Telecommunications revenue was up 14 per cent to $47.5m as 5G rollouts around the globe continued.
Space and defence business increased 19 per cent to $12.3m.
“Direction” revenue (GPS including emergency beacons) increased 16 per cent to $16.4m.
Rakon veteran Sinan Altug (right) was promoted from COO to CEO late last year, replacing longtime chief executive Brent Robinson (who remains as CTO). Photo / File
Rakon was cashflow negative to the tune of $4.5m in the first half.
Net cash fell 21 per cent to $18.4m.
There was no interim dividend.
“Although we expect the first-half challenges and uncertainties, including exchange rate movements, to continue throughout the year, we remain well positioned to deliver a solid result for FY2023,” Rakon chief executive Sinan Altug said.
“Our forward orders are strong. However, we are closely monitoring our markets and may see some dampening of customer demand due to macroeconomic volatility and inventory correction. We are also working hard to manage the ongoing impacts of supply chain disruptions, labour shortages and cost inflation; as well as the business continuity risks around the critical transfer of our Indian manufacturing operation to its new facility.”
On a conference call with analysts, Altug said while the consumer market was slowing, the segment did not represent a material part of his company’s business.
Earlier, the CEO told the Herald that a multi-year re-engineering of Rakon had seen the firm shift its focus from consumer markets (such as components for smartphones) to higher-margin industrial markets.
Altug said Rakon had built up its inventory as it prepared to transition to its new Indian plant. There would be a focus on reducing inventory across its Indian, French and New Zealand operations over the next year.
Rakon shares, which spiked above $2 in February on takeover talk, have been more recently caught in the general tech wreck downdraft and closed Thursday at $1.28.
