Daily ShareChat: Rakon

Crystal timing devices manufacturer Rakon's monthly shipments of TXCOs from its Auckland plant have improved sharply but even though July sales were a record, sales volumes to date are in line with its forecasts, says Craigs Investment Partners.

"With management confirming that the company is on track to deliver on consensus forecast range (a marked down number), we think the stock is fairly priced at current levels," Craigs says.

Rakon is forecasting earnings before interest, tax, depreciation and amortisation for the year ending March 2011 will be between $25 million and $30 million, up from $7.2 million the previous year.

"The Auckland plant is clearly a direct beneficiary of the booming smartphone market," Craigs says. However, a recent conference highlighted another side to the booming story.

"While presenters were upbeat on the demand for smartphone and mobile data devices, the theme that also came through is that the market is fast maturing," it says.

"This is reflected in component shortages and the large number of new smartphone launches expected" in the December quarter.

"Two things generally happen when you have too many competing products for the space: price competition followed by high product attrition rates and then order cancellations," Craigs says.

Recommendation: Hold.

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