rakon 2010 shareholders letter

quality performance

speed and innovation

2010 review

Throughout the world modern communication technologies are influencing how we work and operate. Data is being transferred all over the planet. Rakon products enable this connectivity. From satellite systems in space to the infrastructure we use to connect with others at work and home, from the GPS technology in your phone to the electronic equipment used in space exploration; these examples and more all require Rakon products.

Rakon manufactures components that generate an electrical signal at a specific frequency. Frequency can be used in many ways. For example it may be used to keep track of time (like in your wristwatch) or it may provide stable clock signals for timing used in things such as networks, positioning/location devices and GPS smart phones.

From 1967 until 2006 Rakon was a family owned New Zealand company. In 2006 the company publicly listed. Since then Rakon has acquired and set up operations around the globe and now has a combined history in frequency control dating as far back as 1937. Rakon is one of the few true high tech companies in New Zealand. It is a forward thinking world leader in frequency control solutions. Headquartered in New Zealand approximately 1700 staff are spread across five international manufacturing plants.

about rakon

q

ua

lit

y

pe

rf

or

ma

nc

e

sp

ee

d a

nd

i

nn

ov

at

ion

02 rakon Shareholders letter 2010

Rakon’s strategic direction remains clear; gaining market share through investment in R&D to pioneer new solutions and be the first to meet the next generation of market requirements. Rakon’s strengths lie in its speed to market, innovation, efficient manufacturing and acute understanding of both industry and customer requirements. Rakon anticipates customer needs and develops the next generation solution to meet them.

Strong partnerships with top Fortune 500 companies have aided Rakon’s growth and development with some relationships dating back over 30 years.

Rakon has grown its global manufacturing and engineering capability and is well on its way to being the global industry leader in frequency control products.

StrengthS Strategy and PoSition

S t r eng t h S S t r at e g y & P o S i t ion 0 3

c h a irm a n’ S r eP o r t 0 4

m a n a g ing d ir e c t o r’ S r eP o r t 0 6

g l o b a l m a n a g emen t S n a P S ho t 0 9

b o a r d of d ir e c t o r S 1 0

P e rf o rm a nc e at a g l a nc e 12

f in a nc i a l S 1 4

m a r k e t o v e r v ie w 1 6

P r o duc t S 1 8

t y P ic a l t c x o P r o duc t ion P r o c e S S 2 0

g l o b a l P r e S enc e 22

uP d at e on r a k on c heng du, c hin a 2 3

2010 revie

w

chairman´S rePort

Dear Shareholders welcome to this the fifth Annual Report of your company Rakon Ltd.

Our result for the fiscal year 2010 was far from satisfactory, however the company overcame some very determined worldwide headwinds while enhancing its global business footprint and profitable business streams for the future.

Rakon’s EBITDA for the full year was $4.3 million but importantly the second six months was a $7 million improvement on the first six. This highlighted the business growth that began around November 2009 and has continued with increasing strength since then.

This growth in business is not a surprise; it is the result of our planning and continued hard work by our global team. While the market is maybe 6 months or so behind our original projections, it has now started and the demand is at, or better than the levels we had planned.

The current and projected demand has given us the confidence to publicly state that we are comfortable with analysts projections for FY 2011 EBITDA of between $25 million and $30 million. We will be able to give more detail on this position at our Annual Shareholders Meeting on

September 10th.Our share price has been a real

disappointment over the past year. We have no doubt been caught up in the enhanced volatility of the past 2 years. As a firm whose demand was significantly stalled by the Global Financial Crisis, it’s not unrealistic to see that we have to deliver the performance we believe we are capable of to convince the market to see our value. We are determined to do this and confident that we can succeed.

We have never doubted our plans or abilities and this year sees those plans back on track. There is much more detail on these plans within the report from your Managing Director.

GoingGlobalRakon is a growing global business, and building a global business is significantly different to exporting. “Going global” is often misunderstood in New Zealand where it has traditionally meant exporting; “making more here than our population can consume and selling the rest overseas”. Often exporting means better quality than is sold at home, hence the phrase “export quality”. But what Rakon does is light years apart. We have built our plan on technology


. . . what rakon

doeS iS light yearS

aPart. we have

built our Plan on

technology and

SkillS grown in

new Zealand, we

have enhanced our

Power by joining

theSe attributeS

to Similar and

comPlementary

SkillS, technology

and market

oPPortunitieS

around the world.

and skills grown in New Zealand, we have enhanced our power by joining these attributes to similar and complementary skills, technology and market opportunities around the world. Everything is controlled from New Zealand our home base, even though we have no market here. This involves a different mindset and understanding. Team members are continually on aeroplanes, away from home and on the phone or video conference all hours of the day or night. We have factories and people in the UK, France, Germany, India, China, Taiwan, Malaysia, Korea, the USA and of course NZ.

MarketLeadershipTo retain the market leaderships we have, we need to always be ahead of technology shifts in our key market places, working with design engineers on products and systems years before the finished products or systems will reach market. We have come a long way so far and still have a long way to go. In fact we don’t see a ceiling; we want to continue to build what will be New Zealand’s most successful global technology company, something we can all take great pride in and profit from.

New Zealand needs many more companies like Rakon to build a base balancing our dominant reliance upon the land; agriculture and tourism. The Government clearly understands this and we applaud their investment in Research and Development grants which Rakon is a recipient of. Over the past 12 months we have used grants to develop our crystal technology and to accelerate the development of products for the smart phone and femtocell markets.

Worldwide currency markets have

caused us considerable heartburn over the past year. We operate in 6 major currencies: the NZD, USD, Pound Sterling, Euro, Japanese Yen and Chinese Yuan. All have their impact on our Profit and Loss accounts and Balance Sheet. There continues to be volatility in all these currencies and we keep a constant and vigilant eye on them and their likely movements. However, we have taken advantage of what we believe are some recent positive positions in some of the cross rates and in particular the NZ$/US$, to lock in acceptable rates for the remainder of our financial year.

With all the demand for data growth projects being built around the world, our future looks good and we will work hard to build on these activities and the relationships we have built over the last 5 years or more.

Last year was one we don’t want to repeat financially but the learnings and confidence shown to us by the investment community and our shareholders in taking up our $65 million capital raising will remain with us for a long time. Thank you for that.

To the team at Rakon thanks again for all your hard work during times that have been anything but easy. Your resilience and persistence has ensured the firm’s platform is solid to reach our long term goals.

To our shareholders thank you for your support. I look forward to providing you with a progress update at the ASM and having the chance to talk one on one about our fine company.

Bryan MogridgeChairman

managing director´S rePort

As we expected the second half of the 2010 financial year saw a strong improvement in results as demand grew across our entire business. There is no avoiding the fact we were hit hard by global economic factors over the past eighteen months; however, Rakon has not only survived these difficult times but we have significantly progressed our strategies despite the challenges we faced. During this financial year we have been able to strengthen and expand our product portfolio into new areas, improved our relationships with key strategic customers and have seen several long anticipated production programmes begin to deliver tangible results. All of this has been underpinned by an ongoing investment of time, effort and money in R&D and people; as well as investment in our manufacturing facilities in New Zealand, Europe, India and China.

SmartPhoneDemandWe have begun to see that GPS is now becoming a standard feature in higher end cellular phones (smart phones). What is also positive is that in the overall cellular phone market more and more people are choosing smart phones over lower cost phones with fewer features. These two factors combine to mean there is a growing demand for GPS in cellular phones and the high performance TCXOs which are required to ensure the system works.

Rakon has been working with large tier-one smart phone companies for some years to incorporate our technology. This has not been an easy task, hurdles such as meeting low price points, supplying very high manufacturing volumes and the fact Rakon is not an existing ‘approved’ supplier to many of these companies, have had to be overcome. In March of this year we saw two major tier-one smart phone manufacturers begin to use significant volumes of Rakon products. This is in addition to the existing, albeit smaller

volume, smart phone business Rakon has been supplying for the last few years. We expect our volumes into this market will be significant in the 2011 financial year.

MobileDataCrunchThe proliferation of smart phones and their increasing use to download or upload pictures, music and other content has put mobile phone networks under increasing pressure. Existing networks can only process so much data and those limits are near to being reached. With massive increases in data consumption predicted many believe we are going to see a ‘data crunch’ where networks will no longer be able to cope. This concern has driven investment into the sector with many communications networks expanding their existing infrastructure, or pushing forward with new technologies which will enable more data to be moved at lower costs. Rakon’s products live at the heart of these networks, providing a timing reference that is used to help move data at higher speeds, over longer distances and with fewer errors.

Over recent times we have secured preferred supplier status with many of the world’s leading infrastructure providers. This is a significant achievement as it often gives us first opportunity on new business as it develops. Annually these infrastructure providers spend in excess of US$500 million on frequency control products. Through these relationships we have been able to secure design wins in much of the new 4th Generation network equipment (LTE and WiMax) which is being trialled now. We have also been able to displace competitors and increase our market share in more traditional areas, such as 3G base stations and fibre optic equipment. All of this combined has seen our sales into the telecommunications network sector grow significantly in 2010. We expect that growth will continue and remain highly


over recent timeS

we have Secured

Preferred

SuPPlier StatuS

with many of the

world’S leading

infraStructure

ProviderS.

profitable over the next few years and this market could continue to account for up to half our profit despite predicted increases in demand in the cellular phone area.

In addition to these network deployments we have seen the beginning of commercial femtocell deployments. Femtocells are tiny cellular base stations that can be installed in consumer homes. The advantage of these devices was initially that they were a low cost way of providing cellular coverage to problem areas. However they are increasingly being seen as a way to help take pressure off the main cellular network and deal with the impending “data crunch”. Some network providers in Japan have begun to give these femtocells away for free and market analysts expect there to be significant growth in the market over the next couple of years.

Rakon has been heavily involved in this market since its inception. We are an active member of the industry association and currently supply an estimated 90% of the femtocells being manufactured today. As the market grows we expect to see increased competition, however to date no one else has been able to meet Rakon’s combination of specification and cost that femtocells require. We remain conservative in our estimates of how quickly this market will grow, but there is significant potential there for us which we are continuing to work hard to capitalise on.

r&DInvestmentOur ongoing investment in innovation is critical to our success. At any one time we will have a variety of research or development projects underway. Over the past year we have undertaken three significant projects that are worth mentioning specifically.

Firstly, we have developed and launched a new product line of surface mount VCXOs (Voltage Controlled Crystal

Oscillators). Rakon has previously only serviced the market for these products in a very limited way with legacy product designs. This new range has required significant work over several years and leverages our world leading TCXO expertise as well as effectively utilising existing manufacturing capacity. The world wide VCXO market is estimated to be worth in the region of US$800 million, although we intend to focus mainly on the higher performance end of that market we still see the opportunity as very significant. Many customers in the telecommunications space have been asking for Rakon to develop solutions in this area and for every OCXO we sell several VCXOs are typically also consumed.

Secondly, we are nearing completion of our new Mercury product. The Mercury is a leap forward in OCXO technology, utilising a proprietary ASIC (Application Specific Integrated Circuit) which we have developed in our Advanced Technology group. The Mercury will be the world’s smallest high performance OCXO and will enable Rakon to set new price/performance levels. We expect this product to be shipping to customers in sample volumes later this year, with initial production in 2011.

Thirdly, we have undertaken a project to look at an entirely new way of manufacturing quartz crystal blanks, using a process called photolithography. The quartz blank is the base component in our crystal units and the traditional method, involving slicing a solid bar of quartz into wafers, is reaching the limits of capability in terms of size and cost reduction. In order to continue to shrink our products to meet customer demand

and stay at the forefront of technology we need to develop a new way of doing things.

Photolithography essentially uses a process similar to developing a photograph and has been used in ultra-miniature crystal design for some time; however, it is new for Rakon. So far this year we have been able to produce prototype crystals that are half the size of our current production units. There is significant work required to take these prototypes and make them production ready, but we expect to do this over the coming year.

As well as these projects we continue to enhance our proprietary product testing capability and have initiated and progressed several projects that are focused on improving product performance in our existing TCXO and OCXO product ranges. The demands for consumer products to deliver improved and consistent performance and for networks to cope with ever increasing data loads firmly align with our strategic product roadmap. Rakon’s projects are targeted at developing improved product performance at competitive cost to maintain our position as the industry leader for frequency control products.

ManufacturingDevelopmentsAs many of you will know we are building a significant facility in Chengdu, China. This is a strategic move to ensure Rakon has the production scale and cost base to be able to continue to grow in our high volume consumer markets, such as cellular phone GPS. Progress on the facility has been pleasing with factory designs complete, recruitment of staff underway and construction due to start in July this year. We expect to begin shipping product in mid 2011.

We are also pleased with the contribution from our Indian joint venture operation, Centum Rakon. We began manufacturing OCXO products, which had previously been manufactured in France, there in June 2008. The premise was that India would give us a much lower cost base and would enable us to return the OCXO range to profitability. Transferring operations from France to India was never going to be simple however we are now seeing the benefits of this move. India is now running at a commercial scale and doing so profitably. We are now in the process of expanding their capability and capacity to meet significant demand growth.

outlookThe past year has been a challenging one, but it has also been successful in many ways. A large amount of hard work has been done and we are beginning to see the fruits of that effort. Although our results will always be subject to global economic conditions we have had a great deal of success in matters over which we have control: our products, our technology, our process and relationships with our customers. We believe that 2011 will be a very exciting one for Rakon as we continue to capture new business, see existing business expand and deliver some solid results to our shareholders.

q

ua

lit

y

pe

rf

or

ma

nc

e

sp

ee

d a

nd

i

nn

ov

at

ion

. . . rakon’S

ProjectS are

targeted at

develoPing

imProved

Product

Performance

at comPetitive

coSt to

maintain our

PoSition aS

the induStry

leader for

frequency

control

ProductS.

Brent RobinsonCEO, Managing Director


global managementSnaPShot

Brentrobinson CEO, Managing Director

Darrenrobinson Sales & Marketing Director

global

PhilipDavies Business Unit ManagerUK

PierrePoulain Business Unit ManagerFrance

GeorgeYe General Manager, Rakon ChengduChina

UnnikrishnanP.M. General Manager, Centum Rakon

ronChen General Manager, TimemakerChina

regional

SaleS, marketing, Product management

andrewMcCraithBusiness Development and Product Manager

andrewMilesBusiness Development Manager

ClaudeTrialoupProduct Manager Military and Aerospace

DeanransomRegional Manager North Americas

DeeShahidi Regional Manager Asia

GrahamocklestonProduct Manager New Technologies

JustinMaloney Marketing Manager

kevinMcaloonProduct Manager Volume Products

MaryCarbinBusiness Development Manager

WolfgangBalzerRegional Manager Europe/ Product Manager OCXOs

BriankarlManager Project Management Office

MalcolmLeucharsHuman Resources Manager

Pamanderson Financial Controller

StephenLewis Chief Information Officer

SuPPort

engineering/reSearch and develoPment

DavidGrantGeneral Manager Operations NZ

Jean-MichelJurineOperations Manager France

raviramalingamManufacturing Manager NZ

SteveFalManufacturing Manager UK

oPerationS

GrahamLeaming Chief Operations Officer/Chief Financial Officer

Sinanaltug Global Business Development & Applications Manager

MichaelMcIlroy General Manager Engineering NZ

HughTucker General Manager Global Sales

NZ Germany UK India China France Taiwan USA

ajaibHussain Engineering Manager UK

olegSheyninEngineering Manager Oscillators NZ

PhilBrownlieEngineering Manager Equipment NZ

DominiqueCapouillet R&D Manager France

bryan mogridge ONZM IndependentChairman

Bryan Mogridge was appointed Chairman in November 2005.

Bryan has been a public company Director since 1984. He is currently Chairman of Enterprise Waitakere, Waitakere City Holdings Limited, BUPA Care NZ Limited, and The Starship Foundation. Additionally, Bryan sits on the Board of Mainfreight Limited and Pyne Gould Corporation Limited. Bryan has also chaired the New Zealand Wine Institute, the New Zealand Food and Beverage Exporters Council and the Tourism Board. Bryan was appointed Vice Chairman of UBS New Zealand Limited in April 2007.

Board committee memberships: Audit and Risk Management Committee, Remuneration Committee (Chairman), Nomination Committee (Chairman).

bruce irvine Independentnon-ExecutiveDirector

Bruce Irvine was appointed as a Director of Rakon in November 2005.

Bruce is currently the Chairman of House of Travel Limited, Christchurch City Holdings Limited, Pyne Gould Corporation Limited and MARAC Limited. He is also a Director of PGG Wrightson Limited, Godfrey Hirst Limited, Perpetual Trust Ltd, Market Gardeners Co-operative Limited, Skope Limited, and Scenic Circle Limited. In


board of directorS

Sir Peter maire DCNZM non-ExecutiveDirector

Peter Maire was appointed as a Director of Rakon in November 2005.

Peter is a co-founder and former President of Navman NZ Limited. He sold his shareholding to Brunswick Corporation in 2004 and resigned from his position as Chairman at the end of 2005. Peter is a past board member of New Zealand Trade and Enterprise and is an Honorary Fellow of the Institution of Professional Engineers New Zealand. Peter has made significant investment into New Zealand Technology companies. He is a Director of Orion Systems Limited and the principal shareholder of Fusion Transactive Limited and Fusion Electronics Limited.

Peter was made a Distinguished Companion of the New Zealand Order of Merit (DCNZM) in the 2008 Queen’s Birthday Honours.

Board committee memberships: Remuneration Committee, Nomination Committee.

quality performance

a voluntary capacity, he serves as a trustee of the Christchurch Symphony Trust and the Christchurch Art Gallery Trust.

Board committee memberships: Audit and Risk Management Committee (Chairman).


warren robinSon non-ExecutiveDirector

Warren Robinson founded the Rakon business in the basement of his Howick home in 1967.

He successfully grew and operated the business until 1986 when Brent Robinson became the Managing Director. In subsequent years, Warren has continued to maintain an active role within Rakon and was Chairman until November 2005. Warren received a First Class Certificate in Radio Technology and is a member of the Institute of Electrical and Electronics Engineers, a senior member of the New Zealand Electronics Institute and is a member of The Royal Society of New Zealand.

Board committee memberships: Audit and Risk Management Committee, Remuneration Committee, Nomination Committee.

brent robinSon

ExecutiveDirector

Brent Robinson was first appointed Managing Director and Chief Executive Officer (CEO) at Rakon in 1986 and continues in that role at Rakon today. Brent also leads the technical engineering team acting as Chief Technology Officer (CTO), remaining involved in leading the design of new products and processes. Under Brent’s leadership Rakon has grown from a New Zealand company with revenue of US$1 million to a global company with revenue

darren robinSon ExecutiveDirector

Darren Robinson was appointed Marketing Director at Rakon in 1990. Darren has over 25 years sales and marketing experience at Rakon and has driven sales for Rakon through exploring new markets, applications and establishing arrangements with many top Fortune 500 companies.

Rakon is now a preferred supplier to many of the world’s leading consumer and infrastructure technology companies with annual sales revenue of US$100 million.

of US$100 million. Rakon has a full suite of high performance frequency control products supported by design and engineering facilities in New Zealand, the UK, France India and China. Brent has over 25 years experience in the design and manufacture of crystals and oscillators. He led the team that created the world’s smallest “1 ppm” TCXO in 1990 and the first high volume “0.5 ppm” TCXO in 2003. Both these developments were years ahead of competitive solutions and enabled the GPS industry in particular to achieve significant steps forward in terms of performance and market growth.

Performance at a glance

revenue

0 20 40 60 80 100

2H-10

1H-10

2H-09

1H-09

2H-08

1H-08

2H-07

1H-07

EBITDa

-4 -2 0 2 4 6 8 10 12 14

2H-10

1H-10

2H-09

1H-09

2H-08

1H-08

2H-07

1H-07

research&DevelopmentSpend

0 2 4 6 8 10 12

FY-10

FY-09

FY-08

FY-07

building a global leaderSince 2006 Rakon has been developing from a small niche supplier to a global leader in frequency control and is well positioned to expand in the US$3b frequency control market.

2006 2007 2008 2010 2012

approxstaff 450 850 1500 1700 1900

European acquisition.

Added very high performance TCXOs, OCXOs and crystals.

Initial Public Offering (IPO).

GPS TCXOs and crystals.

Indian & Chinese JV.

Added consumer grade OCXOs and quartz blanks.

Chengdu factory build begins.

Added VCXO/XO range and provision for low cost crystals.

Expansion of TCXO line for very high volume consumer applications.

NEW

ZEA

LAN

D

TCXO

NEW

ZEA

LAN

D

GR

EAT

BR

ITA

IN

FRA

NC

E

XTAL

XTAL+

TCXO

TCXO+

OCXO+

NEW

ZEA

LAN

D

GR

EAT

BR

ITA

IN

FRA

NC

E

IND

IA

CH

INA

Blank

XTAL

XTAL+

TCXO

TCXO+

OCXO

OCXO+

NEW

ZEA

LAN

D

GR

EAT

BR

ITA

IN

FRA

NC

E

IND

IA

CH

INA

CH

INA

Blank

XTAL-

XTAL+

XO

TCXO

TCXO+

VCXO

OCXO

OCXO+

XTAL

NEW

ZEA

LAN

D

GR

EAT

BR

ITA

IN

FRA

NC

E

IND

IA

CH

INA

CH

INA

Blank

XTAL-

XTAL+

XO

TCXO

OCXO+

XTAL

TCXO-

NZ$million NZ$million

NZ$million

XTAL

TCXO+

VCXO

OCXO


R e s p o n s i v e n e s s

quality performance

SPeed and innovation

in 2009 further reSearch went into

imProving the thermal SenSitivity of

rakon’S SPace quartZ cryStal ultra

Stable oScillator (uSo). itS frequency

SenSitivity haS a Strong influence on

final Performance of the doriS

SyStem (doPPler orbitograPhy

and radio-PoSitioning

integrated by Satellite,

cneS SyStem) which uSeS

rakon’S ocxo. the new

Performance achieved

(5.10-14/0c) iS the beSt

Performance achieved by

any SPace uSo globally.

IncomeStatement

2010 2009

Fortheyearended31March2010 ($000s) ($000s)

Revenue 144,513 139,472

EBITDa 4,269 18,529Depreciation, amortisation and share based payments (8,653) (8,566)

EBIT (4,384) 9,963

Interest (298) (2,140)

net(loss)/profitbeforetax (4,682) 7,823

Income tax expense (679) (3,354)

net(loss)/profitaftertax (5,361) 4,469

StatementofCashFlow

2010 2009

Fortheyearended31March2010 ($000s) ($000s)

Net cash flow: - Operating activities 1,010 16,631- Investing activities (8,948) (20,177) - Financing activities 54,078 (898)

netincrease/(decrease)incashandcashequivalents 46,140 (4,444)Foreign currency translation adjustment (2,253) (57) Cash and cash equivalents at the beginning of the period 1,994 6,495

Cashandcashequivalentsattheendoftheperiod 45,881 1,994

BalanceSheet

2010 2009

asat31March2010 ($000s) ($000s)

assetsCurrentassets Cash and cash equivalents 46,559 8,907 Trade and other receivables 34,064 30,603 Derivatives - held for trading 102 - Derivatives - cash flow hedges 242 959 Inventories 40,732 41,221 Current income tax asset 1,886 1,727

Totalcurrentassets 123,585 83,417

financialS


2010 2009

asat31March2010 ($000s) ($000s)

non-currentassets Trade and other receivables 2,941 3,306 Investment in shares 743 743 Property, plant and equipment 41,712 44,535 Intangible assets 33,766 37,831 Investment in associates 17,762 19,996 Interest in joint venture 4,142 4,854 Deferred tax asset 931 -

Totalnon-currentassets 101,997 111,265

Totalassets 225,582 194,682

Liabilities Currentliabilities Bank overdraft 678 6,913 Borrowings 522 2,171 Trade and other payables 24,200 19,437 Derivatives - held for trading 12 - Derivatives - cash flow hedges 138 1,831 Provisions 75 174 Current income tax liabilities 1,102 - Other liabilities 4,193 -

Totalcurrentliabilities 30,920 30,526

non-currentliabilities Bank borrowings - 7,864 Other liabilities - 15,351 Provisions 1,718 2,256 Deferred tax liabilities - 399

Totalnon-currentliabilities 1,718 25,870

Totalliabilities 32,638 56,396

netassets 192,944 138,286

Equity Share capital 173,846 103,301 Reserves (14,058) (1,748) Retained earnings 31,520 36,732 Minority interest 1,636 1

Totalequity 192,944 138,286

Rakon has been the number one frequency control solutions provider for positioning systems since entering the market back in 1991. Global Navigation Satellite Systems (GNSS) are increasingly becoming part of our modern day infrastructure and services. Positioning capability is constantly being designed into an extending range of mass marketed consumer applications.

market overview

main aPPlicationS: Personal Navigation Devices (PND), emergency beacons, recreational GPS, surveying/mining/agricultural GPS.MainProductFamilies:GPS TCXOs, GPS crystals, GPS module

InnovatIon and precIse understandIng

positioning

Rakon has had success in gaining market share through superior product performance and close customer relationships. Expanding deployments of 3G wireless networks as well as plans for 4th generation technologies (WiMAX, LTE) provide significant opportunity for Rakon. Underground fibre optic cables are also being installed to transfer more and more data. Rakon’s technology helps networks move more data through new and existing methods by improving network synchronisation.

The emerging femtocell market is also gaining momentum. This small cellular base station is designed for use in the home or business. Femtocells allow service providers to extend their service which otherwise would be limited or unavailable. Femtocells offload the amount of data traffic through a network helping to alleviate data congestion. Rakon currently supplies an estimated 90% of the femtocells in production.

main aPPlicationS: Wireless/cellular communications infrastructure (such as GSM, CDMA, WCDMA, LTE and microwave), fibre optic connection equipment, femotcells and network timing equipment.

MainProductFamilies:XOs, VCXOs, TCXOs, OCXOs

CONSTANTLy AChIeVINg New LeVeLS OF PeRFORMANCe

telecommunications


main aPPlicationS: Space, aviation, defense, public safety.

MainProductFamilies:crystals, XOs, TCXOs, VCXOs, OCXOs, and space qualified crystals and oscillators

All of Rakon’s products play an important role in the performance and reliability of the applications they are used in. However in some industries reliability and high precision performance are critical. Rakon’s ‘high reliability’ customers contribute to world development in the areas of space, defense, power, medical and scientific research. A recognised technology leader in this market, Rakon has world leading quality assurance practices. The company has a long history and reputation of working in partnerships with these organizations to develop new technologies to meet increasingly exacting requirements.

main aPPlicationS: GPS enabled smart phones & PDAs.

MainProductFamilies:TCXOs

Demand for Location Based Services (LBS) is driving the requirement for GPS capability in the phone. Rakon is a global leader in creating high volume, low cost, high performance solutions that enable GPS to work within the challenging operating environment of the mobile phone. GPS is becoming a standard feature in smart phones and the smart phone market is growing disproportionally to the rest of the mobile phone market.

The environments that handset GPS must operate in are extremely challenging. Rakon has been developing new designs in high stability TCXO technology, to continue to develop cost reducing solutions with unmatched performance. Rakon’s technology leadership in GPS applications has been recognised by smart phone manufacturers and Rakon are gaining market share with the leading players in this market.

Mission critical precision perforMance and reliability

Creating breakthroughs ahead of their time

high reliability

mobile

quartZ cryStalS (x)

At the heart of the XO, VCXO, TCXO and OCXO product is quartz crystal (X). By passing an electric current through the quartz, the oscillator circuit can generate the underlying timing signal it uses. Rakon uses the majority of its crystals for its own oscillator manufacturing.

cryStal oScillatorS

(xos) and voltage

controlled cryStal

oScillatorS (vcxos)

Rakon is currently developing a new XO and VCXO product range. Generally XOs are lower in cost as they are quartz crystals combined with simple electronic circuitry. VCXOs are electronic oscillators designed to have their oscillation frequency changed by a voltage. Customers using high performing OCXOs for basestations and telecom infrastructure, also use many XOs and VCXOs as part of their timing network requirements.

high Stability tcxos

(temPerature

comPenSated

cryStal oScillatorS)

High stability TCXOs are focused on the high volume, high performance markets, such as mobile phones and PNDs where small oscillator size is important. Performance ranges are from 0.5 ppm over a wide temperature range, with physical sizes as small as 2.0 x 1.6 mm.

ultra Stable tcxos

Many applications demand an even higher level of performance than our high stability TCXOs. Using Rakon’s unique, patented compensation technology, our ultra stable TCXOs can achieve stabilities better than 100 ppb over temperature. This world-beating performance has led to Rakon becoming the supplier of choice in the majority of emergency beacon, timing/synchronisation and femtocell reference designs and has helped us replace the competition’s more expensive products in many telecommunications infrastructure systems.

ProductS

Rakon is a world leader in developing and making frequency control components, which have quartz crystal technology inside. The frequency control component is at the heart of almost all electronic circuits and provides precise timing which is in a variety of applications. Our products are continuously evolving. At Rakon we work in partnership with our customers from initial concept through to the final product – offering customised solutions and an acute technical understanding every step of the way.

The precision of the timing component can directly affect performance of the electronic device. The timing accuracy generated by Rakon’s products is measured in parts per million (ppm) or parts per billion (ppb). Our customers have differing requirements for things such as accuracy level and output characteristics, cost, manufacturing flexibility and size requirements.

Rakon has 6 main product families. At the heart of all these families are Rakon’s crystals which are also sold separately.


ocxos (oven controlled cryStal

oScillatorS)

OCXOs are used in applications like wireless communications (base stations), network synchronisation and satellite communication, where precise reference clocks are needed to secure high volume data traffic. Stabilities can be as tight as sub-1 ppb (one part per billion, which is equivalent to about three seconds out of a century). OCXOs are generally more expensive as their physical dimensions are a lot larger and they consume a lot more power than a TCXO.

temPerature comPenSated

ocxos

Rakon has identified a gap in the standard frequency control product offering where the tight stabilities of OCXOs are required but size, price and power consumption pressures mean a different approach is needed. With this in mind, Rakon has designed a new class of unique, patented oscillators, the TC-OCXO. Using the same Pluto technology as our ultra stable oscillators but with additional temperature control, we can now offer superb, sub-50 ppb performance at a fraction of the price and power consumption of a standard OCXO. This product has a tighter frequency stability specification than any TCXO but is cheaper than the lowest cost OCXOs available.

moduleS

In 2006 Rakon developed the world’s smallest GPS RF front end module. This is a complete GPS radio which a GPS designer can integrate into their system without having to worry about the difficult RF design work. Since then Rakon has expanded its product range and offers more cost effective GPS modules for positioning and timing applications.

quality Performance


tyPical tcxo Production ProceSS

B

E

F

G

H

I

L

M

n

o

P

r

S

q

a

Pre-Clean Room

Clean Room

Crystal Test

TCXO Manufacturing and Assembly

T

1

2

3

4


J

k

3

C

D

The oscillator manufacturing process is highly complex. There are over a thousand steps that the crystal typically goes through taking up to eight weeks from the initial quartz bar to becoming a complete oscillator product. Extensive testing is conducted throughout the entire process from beginning to end. At Rakon, specialised equipment developed in-house provides unique advanced TCXO testing and compensation technology. The example shown is of a typical TCXO production process.

1. Pre clean room CuttingQuartz bars are mounted onto plates. The angle of cut affects the frequency versus temperature performance. X-ray equipment is used. Slurry saws slice the bars into thin wafers. Any natural impurities are removed and they may be further cut into smaller wafers before further processing.

Lapping,DimensioningandBevellingThe wafers are mounted into machines which grind the wafer surfaces down using fine abrasives. The thickness of the wafer determines the frequency. The blanks go through a process to set their exact dimensions (length and width). The quartz wafers or blanks are tested and sorted into groups using frequency sorters. They are X-rayed to measure their final dimensions and angle with respect to the reference quartz lattice plane. Lower frequency wafers need to be slightly curved around the edges. The wafers are bevelled by placing them into high speed rotating chambers with a abrasive powder which removes the sharp corners.

2. clean room EtchingThe quartz blanks are then etched chemically, to improve the surface finish and then sorted into frequency groups. All processes from etching through to sealing are performed in a class 1000 clean room to ensure no contamination is on the quartz surface which may cause performance or quality issues later on. Laser particle counters monitor the environment and critical processes and pieces of equipment.

PlatingA machine evaporates gold onto the surface of each blank to form an electrode pattern and enable an electrical connection.

MountingThe blanks are then mounted and glued into bases using robots.

FinalFrequencyadjustmentThe frequency of each crystal is then measured while excess gold is removed from the surface of the blank by firing high speed ion particles at the surface.

SealingThe packages are sealed using robotic equipment operating in a high pressure nitrogen environment to ensure no moisture or other contaminants enter the crystal cavity at the final stages.

3. cryStal teStingAfter the cleanroom the crystals go through electrical testing (such as ageing and parameter testing). The crystals are fine and gross leak tested. The crystals must pass a fully automated 100% electrical and visual inspection.

They are then laser marked, loaded into reels and either shipped to the customer or sent to TCXO manufacturing.

4. tcxo manufacturingSurfaceMountTechnology(SMT)assemblyThe crystals are mounted onto ceramic oscillator substrates using high speed pick and place machines.

TemperatureTestingThe oscillators are then 100% tested in proprietary temperature chambers which measure the oscillator’s frequency stability characteristics over a wide temperature range.

In high volume TCXOs a small amount of memory inside the oscillator is loaded with individually calculated information which enables the oscillator to remove most of the crystals natural frequency variation. Rakon’s proprietary process enables high volume GPS TCXOs to achieve an accuracy of better than 0.1 ppm at a very low cost. Other techniques for compensating the oscillator can be used to achieve either higher precision or lower costs depending on customer and product requirements.

FinalTestandPackingThe oscillators must pass a fully automated 100% electrical and visual inspection before being loaded into reels and shipped to the customer.

a

B

C

D

E

F

G

H

I

J

k

M

L

n

o

rq

P

S

T

T

1

2

4

k e y 20 100 0 5Manufacturingplants

013Market and Customer Support Offices

global PreSence

Lincoln/Harlow,UkDesign and manufacturingof TCXOs and advanced technology products and European Market and Customer Support

euroPe aSia/Pacific

MarketandCustomerSupport

Manufacturing

argenteuil,FranceDesign and manufacturing of crystals and OCXOs, Market and Customer Support

Bangalore,IndiaJoint Venture with Centum Electronics

north america

headquarterS

auckland,newZealand Design and manufacturing of crystals and TCXOs and Market and Customer Support

170 0Staff (including Joint Ventures)Centum Rakon (India) 215Timemaker (China) 880

Chicago,IL,USa

Losangeles,California,USa

Mannheim,Germany

Tokyo,Japan

Taipei,Taiwan

Penang,Malaysia

Seoul,korea

Shenzhen,China

Beijing,China

Shanghai,China


uPdate on rakon chengdu, china

1. build a factory:

keyBuildingFacts:

Land size: 135 m x 128 m (4.3 acres) Approximately 17,000 m2

Building size: 100 m x 90 m (9,000 m2)

Floor Areas: Factory 9,000 m2 Office Area: 2,500 m2

Total Floor Area: 11,500 m2

The building design will be completed in June. Construction will commence in July 2010.

2. eStabliSh Production

caPability:

keyproductioncapabilityfacts:Initial production capacity of 5,000,000 crystals per month, with space to expand this up to 30,000,000 per month as demand dictates.

Oscillator production capacity of 5,000,000 to 15,000,000 per month is planned, although production will not be available until phase two of the project in 2012. This will complement our New Zealand production capability.

Equipment will be installed and commissioned during February and March 2011. Qualification of the equipment and production processes should see product rolling out from our Chengdu production lines by June 2011.

3. build an organiSation:

Approximately 400 employees will be employed in the Chengdu factory when it is fully operational. To build an organisation, we need to recruit and train these staff, while at the same time we need to develop the business processes required to run the operation. Currently Rakon has 10 employees in Chengdu. It is anticipated that the building will be completed in December 2010. Some staff employed in the Chengdu factory will be trained in New Zealand.

In addition to the Rakon Chengdu factory, Rakon is working with Joint Venture company Timemaker building on a 16,000 m2 site adjacent to the Rakon Chengdu factory. Plans are underway for the construction of buildings for Timemaker covering a footprint of 8,000 m² with a total floor area size of 16,000 m² (over multiple levels).

Rakon is working hard to establish a significant manufacturing base in Chengdu, China. Chengdu is approximately a two and a half hour flight north-west of Hong Kong. This project incorporates 3 main sub-projects:

Chengdu,ChinaJoint Venture with Timemaker Crystal Technology

www.rakon.com

rakon 2010 shareholders letter

Documents