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Rakon warns of potential $10 million hit to full year underlying earnings

Computer chip, processor, CPU, technology, components
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Computer chip maker Rakon is warning of a potential $10 million hit to its full year underlying earnings due to a slowdown in the rollout of 5G networks.

The company said the slowdown would be temporary, but it posed a risk to its forecast guidance of $26m-$34m in the current financial year ending March 2024.

It said since releasing its 2023 results in May, the picture has changed for its leading telecommunications infrastructure customers, who have indicated the slowdown in the 5G rollout would last longer than previously thought.

"This temporary slowdown is driven by a more conservative stance from the global mobile network operators for FY24," Rakon told the sharemarket in a statement.

The reduced demand would lead to a slower drawdown of stockpiled inventory among its telecommunications customers, it said.

"With three quarters of FY24 remaining, Rakon will continue to work alongside its customers as they manage their inventory levels through the temporary slowdown, and the company will update its projections as it progresses further in FY24," Rakon said.

At the same time, the company said its first quarter performance across its core markets was above expectations.

It also said the demand outlook in the space and defence sector remained strong, with better than expected orders for the current financial year.

Rakon said its medium-to-long term growth drivers remained strong, and the company remained confident of normal customer chip inventory levels by the end of 2024.

"Despite the temporary slowing of the global 5G rollouts, the drivers behind the technology continue to be strong. In Ericsson's Q2 results, released on Friday, the company confirmed its earlier forecast for global 5G subscriptions to reach 1.5 billion connections by the end of calendar 2023 and 4.6 billion by 2028," it said.

Rakon said it had made good progress with its milestones, with a new manufacturing facility in India expected to improve margins in 2025.