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WIKI ANALYSIS
Gentex Corporation (NASDAQ: GNTX) is the world's largest manufacturer of auto-dimming, glare-reducing rear-view mirrors, with over 12 million mirrors sold annually and a total capacity 25 million mirrors. Nearly all of the company's sales are made to auto manufactures, indicating the company's performance is tightly correlated to the overall health of the automotive industry. In addition to making rear-view mirrors, the company also makes fire protection products and dimmable aircraft windows.
Only 18% of the nearly 60 million vehicles sold worldwide annually, have an interior self-dimming mirror. The company estimates that the potential market for automatic dimming mirrors is 50% of the light vehicles produced each year (approximately 30 million) which represents a $3 billion potential market. Both houses of Congress have passed an automotive safety bill that sets higher rearview mirror visibility standards. Given that Gentex controls 83% of the market for auto dimming rear view mirrors, a large increase in demand due to the proposed legislation will disproportionately affect the company.
Company Overview
Business Segments[1]
Automatic-Dimming Rearview Mirrors - the company is able to make automatic-dimming rearview mirrors by applying electrochromic technology to the glare-sensing capabilities of its Motorized Mirror. Through the use of this technology, the mirror gradually darkens to the degree necessary to eliminate rearview glare from following vehicle headlights. The interior auto-dimming mirror offers all of the continuous reflectance levels between its approximate 87% full-reflectance state and its 7% least-reflectance state, taking just a few seconds to span the entire range. Special electro-optic sensors in the mirror detect glare and electronic circuitry supplies electricity to darken the mirror to only the precise level required to eliminate glare, allowing the driver to maintain maximum vision. This is accomplished by the utilization of two layers of precision glass with special conductive coatings that are separated by the Company’s proprietary electrochromic materials. When the appropriate light differential is detected by the sensors, an electric current causes the elctrochromic material to darken, decreasing the mirror’s reflectance, thereby eliminating glare. The company sold 8.6 million interior dimming mirrors in 2009 to companies like BMW (FRA:BMW), Ford Motor Company (F), General Motors (GMGMQ), and Toyota Motor (TM) among others. Exterior auto-dimming mirrors are controlled by the sensors and electronic circuitry in the interior auto-dimming mirror, and both the interior and exterior mirrors dim simultaneously. The company sold 3 million exterior dimming mirrors in 2009 to similar companies.
Non-Automatic-Dimming Rearview Mirrors - Advanced-feature auto-dimming mirrors currently being offered by the company include the auto-dimming headlamp control mirror, the auto-dimming lighted mirror with LED map lamps, the auto-dimming compass mirror, the auto-dimming mirror with remote keyless entry, the auto-dimming compass/temperature mirror, the auto-dimming dual display compass/temperature mirror, auto-dimming telematics mirrors and the auto-dimming HomeLink mirror.
Fire Protection Products - The company manufactures approximately 60 different models of smoke alarms and smoke detectors, combined with over 150 different models of signaling appliances.
Dimmable Aircraft Windows - The company has an agreement with PPG Aerospace to work together to provide variably dimmable windows for the passenger compartment on the new Boeing 787 Dreamliner series of aircraft. The Company will ship about 100 windows for the passenger compartment of each 787.
Business Growth
FY 2009 (ended December 31, 2009)[2]
- Net sales fell 13% to $544 million. Automotive net sales decreased by 13% on a 19% decrease in auto-dimming mirror shipments reflecting lower light vehicle production globally.
- Net income increased 4% to $64.6 million. Selling, general and administrative expenses decreased 16%.
Trends and Forces
- Legislation to require greater safety standards in vehicles: The Kids Transportation Safety Act of 2007 requires "a rearward visibility performance standard that will provide drivers with a means of detecting the presence of a person behind the vehicle in order to prevent backing incidents involving death and injury, especially to small children and disabled people". The bill does not state how visibility can be enhanced, however, Gentex controls 83% of the market share and the Company's RCD Mirror is a cost competitive product that is relatively easy to implement.
- Reflective Mirror Market: Gentex is dependent on the condition of the reflective mirror market. It is a small market and Gentex is, in control of 83% of the market share. Any changes in demand for the products, or price changes in the factors of production will affect Gentex's revenue.
- Advancements in non-vehicle sales: Gentex has a contract with Boeing to produce automatic dimming windows for the new Boeing 787 Dreamliner aircraft. The value of this initial contract was worth approximately $50 million over the first five years once volume production begins, with the majority of that revenue attributable to Gentex under the Company's agreement with PPG Aerospace.
- Depressed sales for the automotive industry: U.S. auto sales plummeted due to the weak US economy. The mortgage crisis, rising oil prices , and other factors are combining to lower sales of vehicles across the globe. This poses a risk to Gentex’s sales, 96% of which are to customers within the automotive industry.
- Reliance on key customers: Four customers, General Motors Corporation(19%), Daimler AG(15%), Toyota Motor Corporation(13%) and BMW(12%) account for 59% of Gentex's annual net sales. Gentex relies on these companies, and anything that negatively affects them, worker strikes, for example, will lower Gentex's sales and revenue.
Competition
Gentex is the leading producer of auto-dimming rearview mirrors in the world and currently is the dominant supplier to the automotive industry with an approximate 83% market share worldwide.
Magna Donnelly is its only significant competition and is supplying a number of domestic and foreign vehicle models with its hybrid or solid polymer matrix versions of electrochromic mirrors. The larger size and more abundant resources of Magna Donnelly are a primary concern for Gentex. Furthermore, Gentex’s core technology was first patented in 1987 and that and successor patents start to expire this year.
Notes
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