Rakon's 'internet of things' investment to be earnings positive by 2018
By Fiona Rotherham
April 4 (BusinessDesk) - Rakon’s cornerstone investment in an Australian start-up rolling out a new “internet of things”
network in Australia and New Zealand in partnership with French company Sigfox is expected to start having a positive
impact on the high tech component manufacturer’s earnings by 2018.
Rakon is also hoping the new low-powered wide area network technology will boost the NZX-listed company’s moribund share
price, which jumped three cents to 28 cents following announcement of the investment today but is still well down on the
$6 per share achieved in its glory days in 2007, a year after its initial public offering.
Rakon believes the biggest opportunity in the venture is manufacturing the sensors which companies worldwide could use
to connect their products to others.
It has invested a further A$4.2 million in Australian startup Thinxtra, making a total of A$5.8 million in the past four
months and funded from existing debt facilities and cash flow. That’s given it a 63.8 percent stake in the network
operator, which is likely to dilute to 47. 7 percent when Thinxtra’s founding shareholders exercise outstanding options.
Rakon chief executive Brent Robinson said it could potentially invest another A$3 million to fund the operation for more
than a year but the Auckland company doesn’t need to remain the majority shareholder. “We just wanted to get it
rolling,” he said.
Its stake is likely to be diluted to around 35 percent in a Round B capital raising of around A$15 million scheduled
later this year. That will help fund the estimated A$13 million to A$15 million cost of the trans-Tasman rollout and
operating expenses.
“That Round B capital raising is expected to go smoothly and we would have rolled out to half the population by then and
starting to see some uptake of users, so we don’t expect to put any further money in after that,” Robinson said.
The company initially looked at being the New Zealand network operator for Sigfox but decided investing in Thinxtra made
more sense. “If we didn’t have the Thinxtra team, we would have had to invent them,” Robinson said.
Thinxtra was set up a year ago, funded by management and a number of industry influencers and customers in Australia and
New Zealand.
Trials of the 'internet of things' (IoT) network, which provides an energy-saving alternative to existing cellular
networks, are underway in Sydney and Melbourne. Thinxtra hopes to provide coverage to 30 percent of Australians and New
Zealanders by the end of this year, rising to 85 percent within 18 months.
Robinson said the first purely dedicated network for the internet of things is a game-changer, with major opportunity
for Rakon.
“We can make some building blocks and have some ideas of how to make the sensors at a very competitive cost as we have
all the infrastructure and can leverage what we have been developing for the GPS and cellphone industry,” Robinson said.
“The market is quite immature and we wanted to get in on the ground floor in the early days. There are huge numbers
touted – 50 billion connected devices by 2025 - so we just want to be part of that.”
Sigfox claims its network has the lowest deployment and maintenance costs of any system proposed, allowing lower cost
subscription plans.
The Australasian move is part of Sigfox’s plans to expand its network around the world, with rollouts in each country
undertaken with a network partner. Set up in 2011, the French company now operates in 14 countries and is backed by
investors including telcos and venture capitalists,
Chief executive and co-founder Ludovic le Moan said the company aims to roll out the global network as fast as possible
to convince more companies to develop applications for it because of the breadth of the opportunity. It has set a target
of being in 60-plus companies by 2018.
Sigfox’s low-speed networks are typically based on antennae and base station infrastructure that are relatively easy to
set up and run independently, and at a 10th of the cost of a traditional cellular network, the company says.
It targets “simple messages” as most IoT-connected devices don’t need to send huge data loads and can function well on
ultra-narrow band technology. Because they are only “on” when they are transmitting, power demand is negligible. The
biggest uptake of data users so far has been in the areas of security, water and gas metering, and parking.
Le Moan said the network was not competing with existing technologies as the IoT was “something of a revolution”.
“Other networks are trying to cover from low to high and that’s a big mistake. No other business is focused on the low
footprint we are doing,” he said. “We are targeting a 60 percent market share.”
Based on current market forecasts, the parties expect the total number of connections in New Zealand to overtake the
total population, currently close to 4.7 million, by 2022.
The companies said Thinxtra will generate revenue from three areas: infrastructure, applications and services. It will
sell subscriptions for annual network connections and monthly usage fees, sell and distribute connected hardware, which
could include Rakon-made components, and sell services such as advising customers on solutions and implementation.
Rakon has been exiting the smart wireless market, which didn’t deliver big enough margins, focusing instead on global
telecommunications infrastructure, the avionics, space and defence industries and specialised global positioning system
(GPS) devices.
The company has warned annual earnings will miss forecast having returned to profitability last year after restructuring
to pull manufacturing back to New Zealand and Indian sites only. In January, it forecast underlying earnings before
interest, tax, depreciation, and amortisation of between $9 million and $10 million for the year ending March 31, down
from a previous forecast of $15.4 million.
Robinson said the year had been tougher than expected due to a decline in telco spend but he said that was now turning
around and some significant contracts were due to come through shortly that will improve profitability in the next
financial year.
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