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Investments Will Spur More Growth Gentex Execs Say
GRAND RAPIDS — Gentex Corp. will continue to invest heavily for the foreseeable future to research and develop new products, as the company positions itself for further growth.
Gentex’s R&D costs are growing at a rate of 20 percent to 25 percent annually. Executives told shareholders this month that the company needs to continue that trend, even if it cuts into profits in the short term, in order to develop new products and continue the kind of strong sales and earnings growth Gentex has enjoyed for years.
“As long as it looks like we’re getting a bang for our buck, we’ll spend it,” Gentex Chairman and CEO Fred Bauer said.
Gentex now spends 6 percent of what it generates in net sales on research and development, with some current product programs expected to result in new sales in two or three years. The investments are critical to support the new business that Gentex sees in the years ahead and to achieve sales goals for the future, Executive President Ken LaGrand said.
The company is also investing heavily to develop the infrastructure needed for new sales and marketing offices in Japan and Europe, LaGrand said.
“What we’re really doing is we’re paying a short-term penalty for the opportunity to grow the company long term,” LaGrand said. “It’s an expense today, but hopefully it’s an investment in making the company grow in the future.”
Gentex, primarily a producer of auto-dimming mirrors and electronic components for the automotive industry, posted record sales in 2000 of $297.4 million, a 13 percent increase over 1999. Net income last year grew 9 percent over 1999 to $70.5 million.
Sales for the first quarter grew 7 percent to $79.4 million over the same period a year earlier, even as North American automotive production declined 17 percent. That production decrease resulted in a 7 percent earnings slide, to $17.3 million for the quarter.
Gentex hopes to return annual sales growth to 20 percent once the softness in the U.S. economy abates and the auto industry returns to past volumes. Gentex has enjoyed annual compounded growth rate of about 26 percent for the past several years.
The company hopes to drive future growth on the backs of five separate product areas:
- Increased use worldwide of its popular electrochromic auto-dimming mirrors equipped with electronic features.
- “Camera-on-a-chip” technology that was used to develop a new system that automatically adjusts a vehicle’s low- and high-beam headlights.
- Telematics communication systems hooked into interior rearview mirrors.
- A new high-intensity light-emitting diode that has application beyond the auto industry.
- Auto-dimming “smart” windows.
“The potential is there over the next several years to double or triple the size of Gentex,” LaGrand said.
Gentex in March announced that General Motors had agreed to begin using the “SmartBeam” headlight system in some of the Lincoln models for the 2004 models year. Gentex has signed a second major automaker and is “very close” to landing a third, LaGrand said.