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Rakon poised to take advantage of GPS smart phones

Wednesday 4th November 2009

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Rakon, the manufacturer of crystal oscillators used in navigation devices is well-primed for the future as global positioning systems become more common in mobile phones, according to Goldman Sachs JB Were's head of asset management, Stephen Walker.

The company is poised to experience strong growth in the coming years having secured an agreement to supply parts to a high-end smart-phone manufacturer, says Walker.

Rakon is also in discussions with other manufacturers, which need better navigation components in smart phones such as Apple's iPhone and Research in Motion's BlackBerry as people shift away from separate personal navigation devices.

"Rakon is able to give high-spec performance to these phones, which can then perform much better than previously," Walker told an investor roadshow in Wellington.

"The phone producers generally have two suppliers, but even so, we expect Rakon to grow 30% provided they can produce enough" to meet demand, he said.

The components manufacturer recently tapped investors for $86 million to expand its Chinese manufacturing operations and boost the volume of its production while reducing the cost of doing so.

Some $30 million of the new capital will go into the first construction stage of a new factory with joint venture partner Timemaker, while additional funds will be used to pay down debt.

Walker was also encouraged by the company's 90% market share in supply parts for femtocells, devices that allow internet service providers to extend indoor service coverage and is designed to support multiple mobile phones.

The number of femtocells is projected to grow to 12 million units by 2012, of which Rakon stands to make about US$8 per unit, Walker said.

"There's potentially a large revenue stream coming their way."

Shares in the company were unchanged at $1.15 in trading today and have declined 8.7% this year.

The stock was rated "outperform" in a Reuters survey of analysts, with four recommending it as a "hold", and one each recommending it as "outperform" and "buy".

Rakon was not immediately available for comment.

Businesswire.co.nz

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