Rakon chief executive Sinan Altug on the challenges of Covid, the CO2 crisis, and new markets. Video / Molly Floyd
Rakon says a slowdown in telecommunications means its FY2024 operating earnings could come in a third lower than forecast.
A telco slowdown presents a “risk” to $10 million of its 2024 ebitdai (earnings before finance income and expense, income tax, depreciation, amortisation, and net investment income) guidance of $24-$26m, thefirm said in an NZX filing.
The Auckland-based firm, which turns quartz crystals into radio frequency control systems that help telecommunications gear, satellites, missile guidance systems and emergency beacons maintain the same “heartbeat” as other electronics, has returned to profit - and announced its first-ever dividend in May - on the back of a multiyear refocus that saw it shift from the consumer market (such as supply components for smartphones - to infrastructure like gear for telcos’ mobile networks.
Telecommunications revenue grew by 17 per cent to more than $100m last year, making it easily the largest segment as Rakon’s total revenue grew 5 per cent to $180.3m.
CEO Sinan Altug told the Herald the telco sector slowdown was temporary. The big two players in 5G infrastructure outside of the blacklisted Huawei - Nokia Networks and Ericsson - had both dialled back their activity in the short term due to reduced demand from their customers (phone companies building 5G networks).
Rakon chief executive Sinan Altug. Photo / Dean Purcell
“Our understanding of the market conditions aligns with the recent announcements by Ericsson and Nokia, two of our largest telecom customers. They highlight macro-economic factors and their customers’ inventory adjustments as drivers behind the temporary slowdown and anticipate some projects from mobile operators to be rescheduled from [calendar] 2023 to 2024.”
It was unclear how long the slowdown would last. Altug said it could last into the second half of the current financial year. But he said recent announcements from Rakon’s big two telco customers were promising.
“Ericsson forecasts a gradual recovery by late 2023 and significant improvement by 2024, and Nokia anticipates recovery in early 2024. This trend is currently mirrored across all of our tier-1 telecom infrastructure customers,” Altug said.
“The drivers behind the global 5G rollout continue to be strong, including the vast overall growth in data traffic globally and the projections of subscribers tripling over the coming five years,” he said - referencing an Ericsson forecast for global 5G subscriptions to reach 1.5 billion connections by the end of calendar 2023 and 4.6b by 2028.
In the short term, however, both are feeling pain. Both Ericsson and Nokia saw their shares drop by close to 8 per cent on July 14 after Ericsson warned investors about slowing demand in the near term. (Nokia reports on July 19.)
In May, Rakon reported full-year net profit that was down by a third to $23.2m.
After sustained shareholder pressure, the firm also paid its first dividend since it listed in 2006 - albeit at a modest 1.5c per share.
Rakon shares closed Friday at 89c, and were flat in early trading today as the NZX50 opened down 0.2 per cent.
The stock is down 35.5 per cent for the year.
In a June 20 note, Forsyth Barr said Rakon’s newly opened “new state-of-the-art” research and manufacturing facility in Bengaluru, India, would add flexibility and increase margins. The firm also recently upgraded its manufacturing facility in Auckland.
Chris Keall is an Auckland-based member of the Herald’s business team. He joined the Herald in 2018 and is the technology editor and a senior business writer.
