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agility

expertise

innovation

review

precision

09


s p e e d & i n n o vat i o n

03

Ch a irm a n’ s l et t er

04

m a n a ging direc t or’ s rep or t

06

Ma na gement sna p sho t

09

bo a rd of direc t or s

10

shor t fin a nci a l s

12

ma rket o v er vie w

14

produc t o v er vie w

18

t ypic a l produc tion proce s s

20

glob a l pre s ence

22

glo s s a ry of terms

23


s p e e d & i n n o vat i o n

Rakon leads the development and manufacture of frequency control solutions. It sets the standard in the supply of crystal oscillators to the Global Positioning System (GPS), mobile communications, telecommunications and ‘high reliability’ markets - maintaining a major share of the global GPS market for many years. With operations around the globe, Rakon chooses to be headquartered in New Zealand where it was founded by the Robinson family in 1967 and publicly listed in 2006. Rakon is proud of its New Zealand heritage and epitomises the pioneering, innovative, business culture that this enterprising Pacific nation is known for. Rakon offers a diverse range of products from low cost crystals, to high performance, high stability products, including the world’s smallest and most accurate GPS oscillator. It invests heavily to improve its product and employs more engineers than sales staff across its 800 member, global team. Priding itself on being “a large company with a small company attitude” Rakon’s agility enables it to rapidly commercialise new products into markets to gain a competitive advantage. A true market leader, Rakon anticipates its customer’s needs and continually scores the highest ratings possible for quality and performance.

Rakon is first and foremost a technology manufacturing company and wherever possible, retains end-to-end control of its supply chain. The company is currently expanding manufacturing operations in New Zealand and the United Kingdom and its high-volume manufacturing capability in China and India. Rakon is firmly focused on the future and remains excited about the opportunities that exist in all of its major markets.




C h a irm a n’ s r ep o r t

Dear Shareholders, welcome to this the fourth Annual Report of your company Rakon Ltd. The financial result for the 2009 fiscal year represents a hard won effort by the Rakon team world-wide. EBITDA of $18.5m was down 27% on last year and reflects the slowdown experienced in the retail market, which dented demand for Personal Navigation Devices (PNDs), and a volatile Kiwi Dollar. Never the less your company has been very well managed to avoid serious consequences of the world-wide recession. In addition, Rakon has been able to position new products for markets, which research shows, will experience strong growth in the future. One significant feature of the financial results this year was strong operational cash flow of $16.6m. This highlights management’s focus on expedient expenditure and ensuring working capital did not get out of control as orders from certain markets plummeted. On a global basis our business can be divided into 2 very broad categories; retail for which the PND space has been Rakon’s major category, and infrastructure which is largely focused on making the equipment at the heart of telecommunication networks.

“Rakon has been able to position new products for markets, which research shows, will experience strong growth in the future.”



SHAREHOLDERS LETTER 09

The retail space is where much of Rakon’s business has been focused since 2000. Our reliance on this sector was a key factor in our decision to purchase our infrastructure focused European business in 2007. The strategy was to broaden our base, grow our revenue share from high quality customers and hopefully insulate Rakon from the risk of downturns in the retail market-place. This strategy has worked well this year, and that coupled with the superior performance of the team in Europe and India, saw Rakon grow market share and profitability to the point where that business exceeded the previous Rakon offering. Your Managing Director has gone into a lot more detail about products, markets and future opportunities in his report this year which I commend you to read. Also at this year’s Annual Shareholders Meeting we intend having detailed presentations and demonstrations to assist shareholders to better understand the products made by Rakon, the markets we address and the opportunities for those products and markets. I would again like to offer the Board’s appreciation of the efforts of all the people in the Rakon team around the world. It has been a difficult period and one in which tough but


sensible decisions were made about resources and expenditure. This unfortunately meant our team had to suffer redundancies in order to efficiently cope with a significantly reduced order book. This decision was made swiftly during the third quarter of the financial year. As time passed and the world economy worsened further, it looked like we may have had to cut more production. However, our New Zealand team agreed to work reduced hours, using annual leave voluntarily. On behalf of the Board I would like to thank them for this; their act highlights Rakon’s strong culture. During the fourth quarter of the year we announced a significant Government grant of in excess of NZ$4 million, to be drawn upon over a two year period. This is to assist our enhanced Research and Development program for the GPS handset and infrastructure markets. A big thank you to the Government for recognizing the value of such R&D to the New Zealand economy, and specifically to the Foundation for Research,

Science and Technology, for taking the opportunity to assist us. The future looks good for Rakon with the products we have, the continued research we undertake and the market opportunities predicted to emerge. It may take until next fiscal year to properly show the rewards we believe are available, but one thing we have learnt is patience. The reduction in manufacturing activity has not diminished the effort and focus to build more world beating products. We look forward to catching up with you at the Annual Shareholders Meeting on August 14th and having the chance to showcase our key products and opportunities.

B W Mogridge Chairman




m a n a ging dir e c t o r’ s r ep o r t

The 2009 financial year has been a challenging one for Rakon and the world in general; never the less Rakon has been able to successfully push ahead, broaden its product range and increase our market presence. When the world entered a period of recession we experienced a direct impact on our consumer orientated business. However, this was at least partially offset by increased demand driven by accelerated investment into new telecommunications networks and technologies. This was very pleasing and verified the importance of our strategy of diversification into these markets. Overall, considering the economic environment we operated in this year, Rakon delivered a good result. Although it was a difficult year world-wide, the company was able to maintain momentum on most major projects and we remain extremely confident about the opportunities in front of us. Markets & Products The telecommunications sector has been the highlight for Rakon this year. Continual investment in new networks and technologies has driven demand for new frequency control products. We have seen increased demand for smaller, higher performance, lower cost solutions which are in line with Rakon’s strengths and enabled us to capture an increased share of this market. Although organic growth in this sector is a single digit, these market share gains have contributed to significant growth for our UK business where sales of our key ultra stable TCXOs increased by 30%. Demand for more mobility and higher wireless data rates are driving the next generation of mobile networks. We have seen demand increase as existing 3G network technology is deployed into China, as well as the emergence of demand for new networks, such as LTE and WiMAX/WiBro. Our French R&D team have developed industry leading products that specifically address the challenging frequency control requirements for these next generation networks. This has already led to recent contracts for Rakon to supply to tier one equipment manufacturers. Towards the end of the financial year we saw the first demand on a commercial scale for femtocell TCXOs. Integration of this new



SHAREHOLDERS LETTER 09

technology into the mobile phone infrastructure network is an exciting development for Rakon as we are the only frequency control supplier with a portfolio of products to address this emerging market. While the retail sector has been hit by the slowdown in consumer spending, the increasing adoption of GPS as a technology in cellular handsets presents a great opportunity for Rakon. Some market analysts are predicting that over half of the estimated 1.4 billion cell phones sold in 2014 will contain GPS. Although Rakon has been involved in this market for some time, historically handset manufacturers have chosen their frequency control (TCXO) solution based largely on price. As GPS and TCXO performance are closely linked, this has led to a reduction in GPS performance and only a smaller part of the market being attractive to Rakon. We are now seeing a dramatically increased focus on delivering higher performing GPS to the handset, improving the user’s experience and driving greater adoption of this valuable technology. This has meant a shift in focus from price to being more concerned about performance, which is precisely where Rakon’s strengths lie. The environments that handset GPS must operate in are extremely challenging. Rakon has many years of experience developing products for extreme environments and is working closely with the major chipset providers and smart phone producers to deliver increased performance with minimal cost impact. In May of 2009 we announced a NZD $9 million project to support our thrust into the GPS handset and associated network markets. This is supported by the Government’s Foundation for Research, Science and Technology and will help ensure Rakon achieves a leadership position in GPS handset and network infrastructure markets. We expect that we will start to see some meaningful volumes from these markets in the 2010 financial year, with the mobile sector being one of the main markets for our high volume TCXO products. As previously mentioned our traditional consumer GPS market went through a difficult time in the second half of the 2009 financial year


due to the sudden reduction in consumer demand. Recently we have seen a reasonably strong recovery but we expect visibility on what true consumer demand is won’t be evident until the second half of the 2009 calendar year. This market remains very important to Rakon and we believe still presents significant opportunities moving forward. We still command a majority market share and have close working relationships with all the major consumer and non-consumer GPS equipment manufacturers. The proliferation of PND as a standard in-vehicle accessory, as well as the increasing number of factory fit GPS in lower end cars, will help drive demand for consumer GPS in the coming years. In addition to vehicle navigation we are still seeing new applications emerge for GPS. Netbooks for example are a low cost laptop with wireless connectivity and GPS. We have also seen demand for GPS in the femtocell market, where network operators require hardware location to efficiently manage their networks and where they require GPS timing for network synchronization. The non-consumer market for GPS, agriculture, surveying and aerospace, remains a solid contributor to Rakon and is an area where Rakon has an exceptionally strong position and reputation.

In addition to the GPS market we are also seeing a strong demand for our European made Pluto® products for the Emergency Locator Beacon and Personal Locator Beacon market (ELB, PLB). A change in satellite technology and rapid reductions in retail prices have ignited the market. The frequency reference for these beacons is very tightly controlled by the governing body and Rakon is the only TCXO supplier approved, so is very well positioned to capitalise on expected growth. In addition to continuing to enhance our TCXO and OCXO product ranges, Rakon has also begun a programme to develop Voltage Controlled Crystal Oscillators or VCXOs. This is a frequency control product range that we have not previously been engaged in. These products are commonly found in telecommunication applications and with Rakon’s growing presence in that market we feel it is an opportune time to embark. In a joint engineering effort between New Zealand, India and the UK, we have been able to release our first two product families for this market. Initial samples and pre-production will be carried out in New Zealand with production volumes being transferred to India. We expect to be able to begin to capture a meaningful slice of the estimated USD $250 million market for VCXOs later this year.

“Continual investment in new networks and technologies has driven demand for new frequency control products.”




m a n a g i n g d i r e c t o r ’ s r e p o r t c o n t i n u e d

Manufacturing & Operations With the uplift in demand for our PlutoÂŽ based products and in the face of the expected growth in the femtocell market, we have been increasing capacity at our UK manufacturing operation. By leveraging the proprietary techniques we have developed in NZ for the mass production of GPS TCXOs, we have developed and commissioned automated production equipment for Pluto based product. This will greatly improve productivity and capacity for our UK operation and will allow us to capitalise on the expected growth in demand we are seeing before us. Given the sudden drop in demand during the third financial quarter for products from our New Zealand factory, we undertook a strategic review of our operations. This led to us making a reduction in our manufacturing and support staff

numbers. The attitude and support of the staff directly affected, as well as those who stayed, was simply exceptional. With their support we were able to balance the factory capacity with new demand levels, without jeopardising any long terms projects or initiatives. Our Indian operation is now fully up and running, producing high volume OCXO products. Close co-operation between France and India has enabled us to quickly reach commercial scale production, with the smooth transition of manufacturing without impacting on any customer deliveries. France remains focused on Research and Development, as well as the very high performance end of the OCXO market where we see continued niche opportunities. When the world economic situation began to deteriorate, Rakon put our plans for building a facility in China on hold until we could have a clearer picture of the depth and length of the recession. With demand now beginning to return, it is an appropriate time to revisit the project. Rakon remains committed to having China as a manufacturing location to complement our New Zealand manufacturing. We are reviewing the timing, scale and location of the operation in China. We expect to make a decision on when and how to best proceed in the coming months. Closing I am confident that Rakon is well placed to reap the rewards of our continued endeavour and investment. We have an excellent world leading product range and a competitive manufacturing base, underpinned by innovative technology. Our smart, hardworking people are focused on continuing the growth of Rakon and I sincerely appreciate the skill and application of our team. This provides Rakon with the opportunity to thrive and deliver excellent returns for our shareholders in the coming years.

B J Robinson Managing Director



SHAREHOLDERS LETTER 09


m a n a gement sn a p sho t

Graham Leaming - Chief Operating Officer / Chief Financial Officer Graham is responsible for Rakon’s global manufacturing operations, finance, human resources and information systems. Graham joined Rakon in 2005 as Chief Financial Officer and has taken a leading role in the acquisition and integration of Rakon’s European and Asian businesses and joint ventures. Graham was appointed to the role of Chief Operating Officer in late 2008. Hugh Tucker - General Manager Global Sales Hugh manages a team of approximately 40 sales and customer support staff located in 11 world-wide sales offices. Hugh’s role is to grow the business internationally in line with the business plan, develop a proactive sales team and sales process, provide sound leadership and motivation to all sales regions and deploy a direct presence in high growth markets globally. Sinan Altug - Global Business Development and Applications Director Sinan has significantly contributed to Rakon’s prominent success in wireless and wired telecommunications infrastructure, as well as GPS enabled consumer electronics, including mobile phones. In this role he continues to contribute to Rakon’s growth strategy by identifying new markets, applications, customer trends and creating new opportunities and strategies to achieve business growth. Sinan also manages the business development team and global field applications engineering team. Stuart Clifton - European General Manager Stuart is responsible for the management of Rakon’s European business inclusive of manufacturing and engineering design activities in the UK and France and has led the recent transfer and integration of OCXO manufacturing into Rakon’s joint venture with Centum in India.




bo a rd of direc t or s

Bryan Mogridge - ONZM - Independent Chairman 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, Guardian Healthcare Group Limited, Momentum Energy 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 - Independent Non-executive Director Bruce Irvine was appointed as a Director of Rakon in November 2005. Bruce is currently the Chairman of House of Travel Limited and Christchurch City Holdings Limited. He is also a Director of Pyne Gould Corporation Limited, Marac Limited, Godfrey Hirst Limited, Perpetual Trust Ltd, Market Gardeners Co-operative Limited, Skope Limited, and Scenic Circle Limited. In 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). Peter Maire - Non-executive Director Peter Maire was appointed as a Director of Rakon in November 2005. Peter is the 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 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 Shareholder and Director of Provenco Cadmus Limited, Orion Systems 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.

10

SHAREHOLDERS LETTER 09


Brent Robinson - Executive Director Brent Robinson was first appointed CEO & Managing Director at Rakon in 1986 and continues in that role today. Brent also leads the technical engineering team, remaining involved in leading the design of new products and processes. Under Brent’s leadership, Rakon has grown from sales of approximately USD $1 million in 1986 to a current level of approximately USD $100 million per annum. Since listing, Brent has led Rakon’s expansion with manufacturing operations now in Europe, France, India and China. Today Rakon is the sixth largest crystal and oscillator manufacturer in the world. 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 ‘1ppm’ TCXO in 1990, and the first high volume ‘0.5ppm’ TCXO in 2003. Brent has driven the development of Rakon’s core TCXO business, which is the basis of the company’s success today, supplying over 50% of the world GPS market for TCXOs. Darren Robinson - Executive Director 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 has grown from sales of approximately USD $1 million in 1986 to a current level of approximately USD $100 million per annum. In March 2007, Darren was key in Rakon’s successful acquisition of the frequency control product division of C-MAC MicroTechnology, one of the leading manufacturers of frequency references for the telecommunications industry. This acquisition means Rakon is now the sixth largest crystal and oscillator company in the world. During the 1980s Darren sold UNIX based computer solutions to businesses in Australia. Darren completed his Diploma in Export Marketing at Melbourne Technical Institute in 1981. Warren Robinson - Non-executive Director 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.

11


f in a nc i a l s Income Statement

2009

2008

For the year ended 31 March 2009

($000s)

($000s)

Revenue

139,472

174,292

EBITDA

18,529

25,425

Depreciation, amortisation and share based payments

(8,566)

(8,770)

EBIT

9,963

16,655

Interest

(2,140)

(262)

Net profit before tax

7,823

16,393

Income tax expense

(3,354)

(5,542)

Net profit after tax

4,469

10,851

Statement of Cash Flow

2009

2008

For the year ended 31 March 2009

($000s)

($000s)

Net cash flow: - Operating activities - Investing activities - Financing activities

16,631 (20,177) (898)

1,403 (21,963) 24,706

Net increase/(decrease) in cash and cash equivalents Foreign currency translation adjustment Cash and cash equivalents at the beginning of the period

(4,444) (57) 6,495

4,146 46 2,303

Cash and cash equivalents at the end of the period

1,994

6,495

Balance Sheet

2009

2008

As at 31 March 2009

($000s)

($000s)

Assets Current assets Cash and cash equivalents 8,907 Trade and other receivables 30,603 Derivatives - held for trading - Derivatives - cash flow hedges 959 Inventories 41,221 Current income tax asset 1,727

7,168 38,811 115 1,063 44,731 1,144

Total current assets

93,032

12

SHAREHOLDERS LETTER 09

83,417


2009

2008

As at 31 March 2009

($000s)

($000s)

Non-current assets Trade and other receivables 3,306 Investment in shares 743 Property, plant and equipment 44,535 Intangible assets 37,831 Investment in associates 19,996 Interest in joint venture 4,854

36,675 39,226 5,511

Total non-current assets

111,265

81,412

Total assets

194,682

174,444

Liabilities Current liabilities Bank overdraft 6,913 Borrowings 2,171 Trade and other payables 19,437 Derivatives - held for trading - Derivatives - cash flow hedges 1,831 Provisions 174 Current income tax liabilities -

673 3,288 23,573 339 31 3,654

Total current liabilities

30,526

31,558

Non-current liabilities Bank borrowings 7,864 Other liabilities 15,351 Provisions 2,256 Deferred tax liabilities 399

8,000 1,623 1,426

Total non-current liabilities

25,870

11,049

Total liabilities

56,396

42,607

Net assets

138,286

131,837

Equity Share capital 103,301 Reserves (1,748) Retained earnings 36,732 Minority interest 1

103,161 (3,536) 32,212 -

Total equity

131,837

138,286

13


m a rk et o v er vie w

positioning

Innovation and precise understanding

Positioning Rakon has been the number one frequency control solutions provider for positioning systems since entering the market in 1991 when it introduced the world’s smallest 1ppm (part per million) crystal oscillator for the emerging handheld and marine GPS market. Rakon continues to maintain a greater than 50% global market share in GPS oscillators and also an 80% share in EPIRB (Emergency Position Indicating Radio Beacon). Today’s GPS oscillators are 99.75% smaller than their original size in 1991, delivering four times the performance and they are produced at more than a thousand times the volume. Rakon’s continued focus on improving performance while lowering costs has resulted in its oscillators being in demand for more and more diverse applications. Recent developments have seen Rakon products being used for netbooks as well as location based social networking devices. Working closely with its customers, Rakon continues to overcome the challenges of developing next-generation solutions for both conventional and emerging positioning applications. If you have a GPS in your car, your boat, smart phone or camera there is a good chance it will contain an oscillator manufactured by Rakon.

14

SHAREHOLDERS LETTER 09

Revenue by industry - Positioning 55%

precision


mobile

Creating breakthroughs ahead of their time

Mobile We are a generation on the move. We expect to be able to communicate wherever we are, whenever we want. Rakon is at the forefront of the mobile revolution, enabling LBS (Location Based Services) and other GPS solutions to work on your phone. It 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. Rakon has seamlessly taken its knowledge from developing larger scale precision GPS applications into the mobile handset market. Rakon’s new Mako™ IC delivers five times the performance of standard cellular phone oscillators with minimal cost impact for the handset manufacturer. Manufacturing products better, smarter and faster is what Rakon does best. Rakon is on a mission to enable as many mobile phone users as possible to be able to access GPS services; while continuing to push performance to the boundaries of what is possible. Revenue by industry - Mobile 15%

AGILITY 15


telecommunications

Constantly achieving new levels of performance

Telecommunications While we tend to think of oscillators in increasingly small scale applications, Rakon is engaged in ground breaking work to provide advanced timing solutions for telecommunications infrastructure. All over the planet telecommunications companies are deploying 3G, 4G and WiMAX networks to answer the demand for increasingly higher data speeds and anywhere, anytime connectivity. Rakon’s oscillator technology works at the heart of the network, delivering accurate and reliable timing to provide the speed and reliability every network needs. Rakon has developed several unique and world leading solutions to address this rapidly expanding market. Its OCXOs (Oven Controlled Crystal Oscillators) outperform competitor products and its TCXOs (Temperature Compensated Crystal Oscillators) continue to push the boundaries of conventional network performance limits. It is heartening to know that Rakon’s technology is Revenue by industry - Telecommunications helping to make improved communications more w w w . r a k o n . c o m accessible and affordable for the world’s emerging telecommunications networks.

PRE C ISION

20%

EXPERTISE 16

SHAREHOLDERS LETTER 09


Aerospace

Mission critical precision performance and reliability

High Reliability We all regard aspects of technology to be critical but in some organisations high performance is critical and a single, minor failure can have catastrophic results. These organisations generally provide goods or services that are important to society as a whole (e.g. medicine, power, defence, research) and engage in sophisticated technologies that are intrinsically complex. In this rapidly evolving sector, cost is often secondary to performance and reliability. Rakon is staking its reputation on unprecedented levels of quality assurance, testing and research that enables its ‘high-reliability’ customers to have absolute faith in Rakon’s product delivery. It is an industry that is challenging Rakon to develop new technologies and applications to meet increasingly exacting requirements. This research will eventually be applied to new consumer focused products further enhancing Rakon’s reputation for reliability, quality and high-precision performance. In the meantime, Rakon continues to make a valued contribution to critical projects in energy, security, medical, space exploration and leading edge scientific research around the world.

Revenue by industry - Aerospace & Military 10%

innovation 17


produc t o v er vie w

Introduction Rakon is a world leader in the development and manufacturing of frequency control components, primarily based around quartz crystals. The frequency control component is at the heart of almost all electronic circuits, providing precise timing which is used to deliver a variety of applications. Rakon’s speciality is in high volume, high performance applications, where our ability to create new price/performance benchmarks gives us a competitive edge. The timing accuracy generated by Rakon’s products is measured in parts per million (ppm), or parts per billion (ppb). One ppm equals 0.0001% accuracy, with a ppb one thousand times more accurate than this again. The precision of the timing component can directly affect the performance of the electronic device. In GPS this can mean more sensitive/faster signal acquisition and tracking, greater accuracy and greater resilience to environmental effects. In telecommunications it will mean higher data rates, better coverage, more capacity and better service. Juggling the balance between extreme performance, competitive cost, manufacturing flexibility and physical component size is the challenge frequency control companies must face. Rakon is an expert at this and our reputation for quality, precision and service is what sets us apart. Rakon’s products are grouped into 7 main families: High Stability TCXOs Focused on the high volume, high performance markets, such as mobile phones and PNDs. Performance ranges from 0.5ppm over a wide temperature range, with physical sizes as small as 2.0x1.6 mm. Ultra Stable TCXOs Many applications demand even higher performance, in terms of stability and other factors. The ultra stable products can achieve 0.1ppm stabilities and have other unique features which make them suitable for demanding applications such as fibre optic line cards, emergency beacons and femtocells.

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SHAREHOLDERS LETTER 09

produc t s

tcxo

Revenue by Production Location France & India 15%

UK 27% NZ 58%

Revenue by Region Other 2% North America 23%

Europe 23%

Asia 52%


vcxo

ocxo

OCXOs Where precise timing is critical, in applications like cellular base stations and communication satellites, OCXOs are used. Their stabilities can be as tight as <1ppb (0.0000001%), however they are physically large and consume a lot more power than TCXO technology.

circuit can generate the underlying timing signal it uses. Rakon uses the majority of its quartz crystals for its own TCXO and OCXO manufacturing.

Temperature Compensated OCXOs In some OCXO and TCXO applications there is demand for products which are either more stable, physically smaller or consume less power. Traditionally there has been a gap in the market which Rakonâ&#x20AC;&#x2122;s TC-OCXO products are designed to fill. Quartz Crystals At the heart of the TCXO and OCXO product is a physical piece of quartz crystal, precisely mounted inside a hermetically sealed cavity. By passing an electric current through the quartz, the oscillator

Modules In 2006 Rakon developed the worldâ&#x20AC;&#x2122;s smallest GPS RF 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 now offers smaller and more cost effective GPS modules for positioning and timing applications. VCXOs The VCXO is a product segment Rakon has not traditionally competed in. However with an estimated USD $200 million worth of VCXOs sold every year it is an attractive market. Rakon has developed a range of VCXO products which target the higher performance end of the market and complement its TCXO offering. Rakon Product/Market Matrix

PR ICE / PE RF OR MA NC E

Mobile Handset

GPS Handset

Consumer GPS

Commercial GP

S

Telecommunic

ations

Military / Aeros

pace VOLUME

Space

TCXO VCXO CHINA

NEW ZE

ALAND

USTCXO

NZ/INDIA

RAKON

MANU

FA C T U

TCOCXO

OCXO

UK R IN G L O C AT IO

N

INDIA

FRANCE 19


t ypic a l produc tion proce s s

p r e- c l e a n r o o m

1

cle an room

Cutting

Etching

Lapping

Plating

Dimensioning

Mounting

X-Ray

Ion etching

2

Sealing

Cutting & Lapping Synthetically grown quartz bars are first mounted onto specialised cutting plates. As the angle of the cut will affect the frequency versus temperature performance, the mounting process is carried out with the assistance of x-ray equipment. Using highly accurate multi-blade slurry saws the quartz bars are sliced into hundreds of thin wafers, typically 500 wafers are cut from each quartz bar. Any natural impurities are then removed from the wafers and they may be further cut up into even smaller wafers before further processing. The wafers are then mounted into special â&#x20AC;&#x2DC;four wayâ&#x20AC;&#x2122; lapping machines which will evenly grind the wafer surfaces down using fine abrasives to a targeted thickness, all while maintaining flatness on the wafer surface. With AT-cut quartz blanks, the thickness of the wafer will determine the frequency. The lapping machine is able to control the thickness to a tolerance of better than 100 microns (0.1mm). With lower frequency wafers (typically under

20

SHAREHOLDERS LETTER 09

20MHz), the surface of the wafer needs to be slightly curved around the edges. In order to achieve this, these wafers are bevelled by placing them into high speed rotating chambers with a course powder which removes the sharp corners around the edge of the wafer. The quartz wafers or blanks are tested and sorted into groups using X-rays which measure their final dimensions and angle with respect to the reference quartz lattice plane. Clean Room The quartz blanks are then etched in an acidic solution, which improves the surface finish and reduces any spread in frequency of the production batch. All processes from etching through to sealing are performed in a class 1000 clean room with class 100 work stations and processes. This is to ensure that there are no contaminations on the quartz surface which may cause performance or quality issues later on. Particle laser counters monitor the environment and critical stages


p o s t c l e a n r o o m

3

t c x o a s s e m b ly

4

Parameter test Ageing PCB assembly Temperature testing Final test and pack

and pieces of equipment. After etching a high vacuum thin film deposition machine is used to evaporate gold onto the surface of each blank to form an electrode pattern and enable an electrical connection to be made to the quartz. The blanks are then mounted and glued into bases using purpose built robots, designed to perform their function with low contamination and stress. The frequency of each quartz crystal is then measured while any excess gold is removed from the surface of the blank by firing high speed ion particles at the surface of the blank. The packages are sealed using robotic equipment operating in a high pressure nitrogen environment. This ensures no moisture or other contaminants enter the crystal cavity at the final stages of the process. The crystals are then fine and gross leak tested before leaving the clean room, where they will be electrically tested before going into TCXO production.

TCXO Manufacturing The crystals are mounted onto oscillator circuit boards using high speed pick and place machines. The oscillators are then 100% tested in proprietary temperature chambers which measure the crystals 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. Rakonâ&#x20AC;&#x2122;s proprietary process enables high volume GPS TCXOs to achieve an accuracy of better than 0.5ppm 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. The oscillators finally must pass a fully automated 100% electrical and visual inspection before being loaded into reels and shipped to the customer.

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g l o b a l PRESEN C E

EUROPE Lincoln/Harlow, UK Design and manufacturing of Pluto速 based TCXOs and advanced technology products.

ASIA/PACIFIC Shenzhen, China Joint venture with Timemaker Crystal Technology.

Argenteuil, France Sales, support, design and manufacturing of crystals and OCXOs.

Mannheim, Germany

Beijing, China

Shanghai, China

Tokyo, Japan

Taipei, Taiwan

Penang, Malaysia

India Joint venture with Centum Electronics.

NORTH AMERICA

Chicago, IL, USA

HEADQUARTERS Auckland, New Zealand Sales, support, design and manufacturing of crystals and TCXOs.

KEY

Sales and Customer Support

Manufacturing

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SHAREHOLDERS LETTER 09

1300

005

0 12

staff (including joint ventures)

manufacturing plants

sales offices & customer support


Gl o s s a ry of t erms

3G

Third generation cellular network

4G

Fourth generation cellular network

AT-Cut

A specific angle which a quartz wafer is cut from a bar of quartz with reference to its Z-axis

Class 100

A measure of particle contamination in clean rooms, allows no more than 100 particles of size 0.5 Âľm or larger permitted per cubic foot of air

Class 1000

A measure of particle contamination in clean rooms, allows no more than 1000 particles of size 0.5 Âľm or larger permitted per cubic foot of air

EBIT

Earnings Before Interest and Tax

EBITDA

Earnings Before Interest, Tax, Depreciation and Amortisation

EPIRB

Emergency Position Indicating Radio Beacon

Femtocell

A small cellular base station designed for in-home or in-office use

GPS

Global Positioning Systems

GPS handset

A cellular phone handset with GPS functionality

LBS

Location Based Services

LTE

Long Term Evolution, a fourth generation cellular network standard

OCXO

Oven Controlled Crystal Oscillator

Oscillator

An electronic circuit that generates a specific tone or frequency

PLB

Personal Locator Beacon

PND

Personal Navigation Device, typically using GPS and mounted on dashboard of a car

ppb

parts per billion, a measure of accuracy, 1ppb = 0.0000001%

ppm

parts per million, a measure of accuracy, 1ppm = 0.0001%

Quartz crystal

A silicon dioxide solid with a highly regular atomic structure

SMD

Surface Mount Device

TCOCXO

Temperature Compensated OCXO

TCXO

Temperature Compensated Crystal Oscillator

USTCXO

Ultra Stable TCXO

VCXO

Voltage Controlled Crystal Oscillator

WiBro

Wireless Broadband

WiMAX

Worldwide Interoperability for Microwave Access, a wireless data standard

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www.rakon.com


Rakon 2009 Share Holders Letter