World class down under

Monday 1st October 2001

Auckland-based Rakon is what this country needs more of: a high-tech company that is a world leader in its market niche. Fiona Rotherham talked to the publicity-shy family-owned company.

Brent Robinson isn't the typical corporate type. While other companies are pushy as hell about getting their name in the media, Robinson - managing director of electronic components manufacturer Rakon - looks like he'd rather be anywhere else than in this interview. But once he starts talking, his pride in the achievements of his family's Mt Wellington company is obvious. It is the global success of Rakon that saw it make finalist in this year's American Chamber of Commerce innovation and success awards, win best manufacturer in the Hi-Tech awards in 1998 and win in Trade New Zealand's Export awards back in 1994.

Rakon makes high-performance crystals and oscillators for electronic products. Specifically, it makes the quartz crystals used for the frequency control devices at the heart of Global Positioning System (GPS) technology, mobile phones and other electronic equipment. It has 380 employees and exports 95% of what it makes. Its niche is a 50% share of the world market for the GPS critical components, competing against much larger Japanese and US manufacturers.

Focus on quality

Founded in 1967 by Brent's father Warren Robinson, Rakon began life making radiotelephony quartz crystals for the local market, until new technology saw demand dry up in the late 1970s. Brent, also an electronics engineer, began investigating temperature-compensated crystal oscillators (TCXOs), which at that time were just emerging on the world market as components in cellular phones. Rakon won its first TCXO contract in the mid-1980s when Australia's NEC needed local content (under the CER agreement) to gain a cellular phone contract with Telecom. It has never looked back.

Rakon's big break into the US came about almost by chance. Brent's brother Darren, who had just joined the company, spotted a magazine advertisement placed by US manufacturing giant Magellan Systems, which was looking for companies to manufacture GPS receivers. "We got on the phone and found out the TCXOs we had developed were exactly what they were looking for - something better than a cellular phone TCXO. We had learnt to customise the TCXO specifications to a tighter tolerance than our Japanese competitors were willing to sign up for," Brent Robinson says.

In 1991 Magellan and Rockwell - both major North American GPS manufacturers - began ordering large volumes of oscillators from Rakon. Other US corporations followed suit. Today, GPS receivers containing Rakon components are used in a variety of ways: helping boaties find the best fishing spots, allowing the military to keep their bombs on target, and even pinpointing the quickest route home for motorists. Rockwell's military engineers endorsed Rakon's product as the best after testing all TCXOs manufactured worldwide. By the mid-90s, Rakon had become the preferred supplier to most of the major North American GPS manufacturers. It has had more difficulty penetrating the lower-specification Japanese market (which accounts for around half the GPS market).

Another problem has been a shortage of skilled staff, made harder by the fact there was no support industry in New Zealand offering the services and equipment used by other quartz crystal manufacturers. It forced Rakon to train its own staff and develop a lot of manufacturing equipment from the ground up. Ironically, this worked in its favour when what Rakon produced was better than what others were doing.

"We developed our own process that was different to the way the Japanese did it and different to the way the Americans were doing it - maybe a hybrid of both, with a bit of Kiwi ingenuity. We were able to make a very, very good crystal that had a good phase noise, which meant it was a very pure signal. This was important to GPS manufacturers and one of the key reasons we were able to get into their business," Brent Robinson says.

Rakon's proprietary test equipment is also regarded as the world's best, used by a number of other manufacturers. Innovation has been a key factor in its success; current research and development is focused on miniaturisation.

Getting mobile

As a private company, Rakon doesn't have to tell us how much money it makes. It has managed to maintain its market position despite prices for GPS TCXOs falling from $US35 per unit in the 1990s to just $US2 today. What Robinson will say is that revenue has doubled over the last three years and he forecasts further growth of up to six times current revenue.

On the downside, business has slowed considerably this year following the worldwide slump in the telecommunications sector. This came just after last year's expenditure, where the company near-doubled its production capacity and bought adjacent land earmarked for a new factory. While the GPS side of the business is still growing (it accounts for just under 60% of total revenue), the other markets - including wireless and microwave - are relatively flat. The company is "pausing for breath", firing rather than hiring after running three shifts a day last year and being pushed to get deliveries out the door on time. The belt tightening could last at least until year's end in Robinson's view, but the long-term future looks bright. Here's why.

Until now, GPS has been a niche market, used by the military, yachties and the like. It is about to move into the big consumer league. The US Federal Communications Commission, under the e911 mandate, wants all cellular phones sold after October this year to have positioning capabilities. If you compare the two markets, the total GPS market was 10 million units this year while the mobile phone market was around 500 million units. Robinson believes GPS will end up in about half of all new cellular phones, but the rollout may take a couple of years longer than first hoped for. Telcos, saddled with debt from their investments in wireless services and facing slowing sales, are all lobbying to delay introduction of the new regulations. It will happen, it just won't be overnight.

Rakon has been a relatively small player in the current lower specification cellular phone market. The fact it has such a good share of the more complex GPS market puts it in a good position to capture growth, when it comes.

Its biggest current opportunity is the burgeoning growth of automotive GPS mapping systems. Telematics (the automotive communications technology that combines wireless voice and data, including GPS - allowing, for example, companies to keep track of their vehicles and emergency services to track people) is forecast to be built into a third of all new cars by 2006, compared with just 5% today.

Robinson says he's currently negotiating with the largest American GPS manufacturer for cars. "If we get that business, and I'm quite confident about it, it will be quite a lift."

Robinson has no plans to shift Rakon out of New Zealand and is reluctant to lose the family's 100% control. Going public is being considered however, as mass production for the consumer market will require a big capital outlay at some stage in the future. Other options include bringing in a limited number of private investors or borrowing more. "Our first option is to keep it as private as we can for as long as possible, providing we can maintain the momentum of the company," Robinson says.

At least that way you don't have to report to shareholders - and you get to choose when you want to be interviewed.

Fiona Rotherham
fiona@unlimited.net.nz

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