Increasing auto production boosts Gentex sales

October 25, 2010
| By Pete Daly |
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As the global auto industry rebounds, so do the orders at Gentex Corp. in Zeeland, where more than 97 percent of sales revenue is from its auto-dimming mirrors for light vehicles.

Even while enjoying record sales this year, however, Gentex is hedging its bets by increasing its investment in engineering and R&D that will support the development of new products.

Gentex third quarter 2010 sales of $206.8 million were its all-time record for a quarter, and 33 percent more than the same quarter last year. The first nine months of 2010 marked net sales of $594.2 million, the highest of any nine-month period at Gentex. That compared with sales of $366.9 million in the first nine months of 2009.

Gentex chairman and CEO Fred Bauer said it was “continued strong sales of Rear Camera Display and SmartBeam mirrors, coupled with increased light vehicle production in the primary regions utilizing our products” that acted as “the main catalysts behind our solid third quarter results.”

However, a small decline in gross profit margin in the third quarter, compared to the second quarter, was due to increased cost of electronic components used in Gentex products, according to company officials speaking with industry analysts last week.

Gross profit margin was 35.7 percent in the third quarter, compared to 34.9 percent in the same quarter last year. However, gross margin in the second quarter of this year was higher, at 36.7 percent.

Income from operations increased by 42 percent to $47 million in the third quarter of 2010, compared with income from operations of $33.1 million in the third quarter last year.

Gentex Senior Vice President Enoch Jen said improving business in some industry sectors has led to higher demand globally for certain electronic components, and some companies have recently reported experiencing increased costs for those components.

“Those costs were the primary reason for the sequential decline in our gross profit margin when comparing the third quarter of 2010 with the second quarter of 2010, and we expect that these increased costs will continue for the next several quarters,” said Jen.

“However, we continue to see increasing orders for both our SmartBeam and RCD Mirror products, and we’re excited about the prospects for the new, camera-based, driver-assist features that we have in our product development pipeline,” said Jen.

Gentex currently is working to fill nearly 100 technical positions, primarily in the electrical and software development and engineering areas.

The corporation’s engineering and R&D expenses increased by 38 percent in the third quarter, according to Jen, compared to the third quarter of 2009. He said that was “primarily due to hiring new employees and outside contracting of engineering/development services.”

An analyst on the conference call hosted by Gentex last week said engineering/R&D expenses about 10 years ago were in the range of 5 or 6 percent but are now 8 percent.

Jen said it “should be good news for our shareholders that we continue to increase spending on that line. It means we are developing new products and getting ready to launch new programs.”

Net sales to the automotive industry were $201.5 million in the third quarter, and $579.4 million in the first nine months of 2010.

According to Gentex, North American light vehicle production increased by 26 percent in the third quarter of 2010 compared with the same quarter last year. That contributed to a 36 percent increase in automatic-dimming mirrors sales in North America, comparing the third quarter of this year to the 2009 third quarter.

Automatic-dimming mirror unit shipments to offshore customers increased by 24 percent in the third quarter of 2010 compared with the same quarter last year. Light vehicle production in Europe decreased by 1 percent in the third quarter of 2010, and increased by 12 percent in Japan and Korea in the third quarter of 2010, compared in each case with the same quarter last year, according to Gentex.

Gentex also manufactures fire detection devices for commercial buildings and dimmable windows for aircraft. Combined net sales in those categories in the third quarter were $5.4 million, an increase of 15 percent over the same quarter last year.

Jen said an increase in the aircraft windows “more than offset the 11 percent decrease” in fire protection net sales, which was “primarily due to the weak commercial construction market.”

Gentex is now producing electronically controlled dimmable passenger windows for the long-awaited Boeing 787 Dreamliner, each of which has 100 passenger windows.

Gentex is working with PPG Aerospace on its aircraft window orders and also is producing them for the new Beechcraft King Air 350i, the first plane in the general/business aviation market with dimmable passenger windows.

Last week in Atlanta at the National Business Aviation Association convention, PPG Aerospace displayed its new dual-panel version of its ALTEOS interactive window systems, which uses Gentex electrochromic technology. The new product blocks more light than the standard electrochromic systems developed for general aviation.

Electrochromics is the process of reversibly darkening specially prepared transparent materials through controlled application of an electric current, according to PPG Aerospace.

According to PPG, the Alteos Interactive Window Systems allows passengers to control the amount of light coming through the windows, ranging from a bright, clear state to what a Gentex spokesperson called a “darker than dark” state.

Connie Hamblin, vice president of Investor Relations and Corporate Communications at Gentex, said the dual-panel electrochromic window system would “most likely” be of interest to aircraft manufacturers “where weight is not the most important factor.”

Hamblin noted, however, that Gentex has not announced any orders for the dual-panel electrochromic window system at this time.

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