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Investment Thesis
Transphorm, Inc. (NASDAQ:TGAN) was based in 2007, and has been a public firm since February 2020, buying and selling on NASDAQ since Feb 2022.
TGAN is among the many main builders of gallium nitride (GaN) know-how and parts for energy electronics, with an emphasis on greater energy purposes. They imagine they’re nicely positioned to capitalize on the secular shift from silicon to GaN know-how, and have a notably robust patent portfolio.
They have efficiently attracted and retained vital buyers and companions, and shipped actual merchandise in quantity.
TGAN additionally owns and operates, by way of a three way partnership, a GaN semiconductor wafer fabrication facility, to satisfy its personal wants and provide wafers commercially to others.
Revenue for FY 2022 was $24 million, a rise of 89% over the earlier yr. TGAN is focusing on 50% CAGR income development over the following 5 years, into an estimated $6 billion addressable market.
TGAN faces vital competitors, and is but to attain constructive money circulation, however for buyers with a 5+ yr time horizon, it has the potential to offer nicely above market returns.
Introduction
I wrote an article a number of weeks in the past on Navitas (NASDAQ:NVTS), one other firm energetic within the GaN energy electronics area, and a direct TGAN competitor. Based on dialogue within the feedback there, I made a decision to look into TGAN as nicely.
Relative to silicon-based units, GaN units provide benefits together with greater switching speeds, greater breakdown voltages and decrease resistance. This permits extra environment friendly (as much as 40% much less wasted vitality) and smaller, lighter, cooler, and ultimately decrease price energy system. GaN adoption seems to be at an inflection level, and is predicted to take pleasure in speedy development.
In this text, we are going to focus on the Transphorm story to this point, know-how, manufacturing, focused markets, monetary standing, opponents, valuation, dangers, and a few implications for buyers. Their most up-to-date May 2022 Investor Presentation is here.
The TGAN Story So Far
TGAN is a semiconductor firm launched in 2007 by founders Professor Umesh Mishra (now 64) and Dr. Primit Parikh (51).
They beforehand co-founded Nitres, Inc. in 1996, which developed GaN LEDs and transistors, and was acquired by Cree [now Wolfspeed (NYSE:WOLF)] in 2000; this isn’t their first rodeo.
Transphorm merged with Peninsula Acquisition Corporation on 12 February 2020, with Transphorm being the surviving identify. It seems the merger was a “become a public company” mechanism relatively than a funding car; Peninsula’s 30 June 2019 10-K indicated $2,475 in belongings.
It you actually wish to get into the weeds, there are a few hundred pages of associated contracts right here with a lot of element.
Initially buying and selling over-the-counter, TGAN started buying and selling on the NASDAQ on 22 February 2022, closing at $6.92.
Their January 2021 slide deck gives a snapshot of their plans and projections at that time, see here.
As of March 31, 2022, TGAN had a complete of 108 staff, of which 88 are U.S.-based. Note that in April 2021, TGAN modified their fiscal yr finish to 31 March, which you will note repeatedly mirrored under.
Fujitsu – Bringing a Wafer Fab to the Party
In 2014, TGAN established Transphorm Japan, a completely owned subsidiary, and entered a partnership settlement with Fujitsu Limited and Fujitsu Semiconductor Limited “FSL”.
In reference to this settlement, TGAN entered into a producing partnership for AFSW, FSL’s 6-inch silicon wafer fabrication plant in Aizu Wakamatsu, Japan. TGAN additionally acquired a patent portfolio from FSL and a license to a separate portfolio from Fujitsu.
AFSW GaN Semiconductor Fab (Semiconductor Today)
In 2017 this settlement advanced right into a three way partnership with FSL for AFSW, during which TGAN had a 49% curiosity.
GaNovation – China Distribution, Less Fab
In December 2020, TGAN entered right into a three way partnership settlement (see contract here) with JCP Capital Management, LLC Limited (controlling get together with 75% possession as of March 31, 2022) to create GaNovation Pte. Ltd., a three way partnership firm in Singapore, to interact within the enterprise of distribution, improvement and provide of GaN merchandise and any enterprise regarding the companies of AFSW.
At that point, GaNovation turned TGAN’s unique distributor in Greater China, with rights to obtain processed GaN wafers and different parts from TGAN, rebrand and resell packaged merchandise bought from TGAN, and customise and develop mutually-agreed-upon merchandise.
In August 2021, GaNovation acquired AFSW from the TGAN-FSL three way partnership, ending FSL possession and decreasing the TGAN stake to 25%. See this Semiconductor Today article for additional element on this deal.
As of March 31, 2022, AFSW is GaNovation’s main enterprise, and TGAN holds a 25% curiosity in GaNovation.
KKR Phorm Investors – Just Money
In 2015, KKR Phorm Investors L.P., an affiliate of Kohlberg Kravis Roberts & Co. L.P., made an funding of $70 million to assist the commercialization of current GaN energy merchandise. As of 31 March 2022, Phorm is TGAN’s largest stockholder.
Yaskawa – Money and Robots
In 2017, TGAN entered right into a partnership with YASKAWA Electric Corporation of Japan (OTCPK:YASKY), a worldwide chief in movement management merchandise and industrial robots.
In October 2017, Yaskawa loaned TGAN $15.0 million, and in October 2021, transformed the debt to equity, receiving 3,120,000 shares of frequent stock.
In December 2020, Yaskawa agreed to offer $4.0 million over three years to fund developments supporting industrial energy conversion purposes, with an preliminary give attention to custom-made GaN units for servo motor drives. As of March 31, 2022, Yaskawa has offered $1.8 million of this dedication.
Nexperia – Money and Cars and More
Nexperia is a semiconductor element producer headquartered within the Netherlands, and a frontrunner in semiconductors for automotive merchandise. Formerly a part of NXP Semiconductor, it’s a subsidiary of Chinese firm Wingtech Technology, which is about 30% state owned.
In 2018, TGAN established a five-year multi-element cooperation settlement with Nexperia with the aim of building a second supply (Nexperia’s Hamburg fab) for GaN merchandise and higher positioning to penetrate the automotive market with GaN merchandise in the long run.
This included a mix of equity possession, a mortgage settlement, know-how improvement tasks, and licensing of TGAN’s wafer-fabrication course of and sure merchandise; TGAN secured ~ $25 million in funding from Nexperia.
In May 2021, the settlement was amended with a view in direction of a long run provide relationship with Nexperia.
Marelli – Money and Cars
In 2020, TGAN established a relationship with Marelli, a big automotive provider spun out of Fiat, for long run improvement of automotive energy administration and inverter merchandise. As of December 2021, Marelli, owned by KKR since 2018, is reportedly being restructured. As of March 31, 2022, Marelli has made $5 million of equity investments in TGAN.
Technology
TGAN view themselves as a know-how and market chief within the space of GaN energy electronics discipline for top voltage energy conversion purposes.
Relative to silicon-based units, GaN units provide benefits together with greater switching speeds, greater breakdown voltages and decrease resistance. This permits extra environment friendly (as much as 40% much less wasted vitality) and smaller, lighter, cooler, and ultimately decrease price energy system.
TGAN is vertically built-in; this contains gadget design, GaN supplies development, gadget fabrication, packaging, circuit design, and utility assist.
TGAN has advanced their merchandise over time, with Gen-1 and Gen-2 previous to 2016, Gen-3 in 2018, Gen-4 in 2020 and the present Gen-5 SuperGaNTM.
TGAN’s FET merchandise at the moment assist as much as 900 volts, with a 1200 volt gadget demonstrated. Current merchandise assist purposes from 30 watts to 30 kWatts, and can be found in PQFN packages for decrease energy and TO and surface mount equivalent packages.
They declare quite a few trade milestones, together with the primary:
- GaN on silicon gadget
- 600 Volt GaN gadget JEDEC qualification
- excessive voltage GaN automotive certified product below the AEC-Q101 normal
- excessive temperature (175C) rated GaN product
TGAN enjoys a large intellectual property portfolio with entry to over 1,000 world-wide patents protecting supplies, units, fabrication, circuits, purposes, and packaging (see desk under). The worth of owned and completely licensed patents has been estimated at $200+ million.
| Transphorm Patent Portfolio | |||
|---|---|---|---|
| Number | Source | Status | Fees and Royalties |
| 332 | Transphorm | owned | n/a |
| 350 | CREE | non-exclusive | royalty |
| 172 | Fujitsu | non-exclusive | royalty free |
| 150 | Furukawa | sole license |
$200K annual charge + royalty |
| 27 | UC Santa Barbara | unique | royalty |
Manufacturing
Through their GaNovation three way partnership (see above), TGAN owns and operates a wafer engineering and manufacturing facility, AFSW, in Aizu Wakamatsu, Japan.
This absolutely depreciated 6-inch manufacturing fabrication facility has been working GaN processes since 2012, with industrial manufacturing since 2015. Subsequently all manufacturing wafers, for inside use or sale, have been sourced from AFSW.
AFSW has a capability of 14,000 wafers monthly. Capacity may very well be elevated with further capital funding.
Post fabrication processing, packaging, and testing is subcontracted, and carried out at varied websites in Asia. Multiple websites produce PQFN packages, one website produces TO247, TO220 and D2Pak packages.
In June 2022, TGAN negotiated a producing and provide settlement with WorldWafers Co., Ltd. in Taiwan for GWC to fabricate GaN merchandise (see the contract with some redactions here).
Markets
TGAN identifies two enterprise segments – GaN energy merchandise and GaN epi wafers.
GaN Power Electronics Components
TGAN’s preliminary goal markets for GaN energy merchandise have emphasised areas with a requirement for greater voltage and energy, the place the intrinsic GaN benefits over silicon produce vital effectivity beneficial properties, e.g. electrical automobiles.
Perhaps reflecting TGAN’s know-how orientation, they arrange their markets by energy ranges.
| Power | Target Applications | ||
| Low Power | 30w -300w |
|
design-ins > 55 in manufacturing > 20 |
| Medium Power | 300w – 3Kw |
|
design-ins >35 in manufacturing > 15 |
| High Power | 3Kw – 5+Kw |
|
TGAN estimates the GaN energy semiconductor market at $4.5 billion in 2023, rising to $8.6 billion in 2026, with the full addressable market for GaN to be $1.8 billion in 2023, rising to $6.0 billion in 2026. Note that nearly half of the 2026 TAM is from EVs, the upper energy market that has been TGAN’s focus. In any case, there’s numerous room for development.
Power Semiconductor Market (Transphorm)
This October 2021 article in Power Electronics discusses GaN in energy electronics normally and in EVs particularly (determine under), and this article in Charged gives element on the implications of transferring from 400V to 800V for EV battery packs.
GaN within the Automotive Market (Power Electronics)
In the medium energy market, TGAN cites an instance of its success with Corsair, a number one provider of excessive efficiency gaming tools, who efficiently launched its AX1600i collection of 1600 watt GaN-based energy provides. Anandtech reviewed the product in 2018, concluding:
The Gallium Nitride (GaN) components are smaller, lighter, and considerably extra environment friendly than their traditional silicon-based counterparts. Their use allowed Flextronics (and in the end Corsair) to design a platform that mixes higher general efficiency and better output right into a smaller chassis. The finish result’s a PSU that’s no bigger than most 800W designs and but is able to delivering twice that energy output with out flinching. GaN components are tremendously costlier than their silicon-based counterparts however the last product’s price was partially offset by the discount in dimension and cooling necessities, permitting Corsair to keep up the value of the AX1600i at comparatively cheap ranges.
GaN Epi Wafers
A main space of experience and a second line of enterprise is GaN epiwafer (GaN on silicon and different substrates) for the RF/microwave/millimeter wave market and “certain strategic customers” within the energy market. The goal right here is to be a U.S.-based provider for superior GaN epiwafer merchandise for each the U.S. Department of Defense and industrial purposes.
In June 2019, the Office of Naval Research exercised a $15.9 million possibility on a $2.6 million base contract, with work anticipated to be accomplished by June 2022. The Microwave Journal reports that “through the ONR program, Transphorm will establish epi capability on multiple platforms, including SiC, Si and sapphire substrates from 4 to 6 in. — ultimately 8 in. For RF and mmWave applications, Transphorm will be a “pure play” epiwafer supplier of GaN materials.”
On 12 October 2021, TGAN received a $1.4 million contract from the Defense Advanced Research Projects Agency to and fabricate GaN on sapphire wafers, with transistor fabrication subcontracted to UC Santa Barbara. EE Power reports that the aim is to evaluate the efficiency and price and of constructing RF parts for each navy and industrial use.
Transphorm CTO and Co-Founder Umesh Mishra said:
The contract is a chance for the corporate to construct on its place as a premium RF epiwafer provider, its second enterprise vertical.
The aim now’s to take that basis and allow our RF epi clients to attain extra environment friendly RF energy for the greenback.
TGAN is supplying GaN epiwafers on varied substrates, together with silicon carbide, sapphire and silicon, starting from 4 to six inches in diameter, for RF/microwave/millimeter wave gadget markets.
They observe that they function a pure-play epiwafer foundry for these markets, as they don’t make RF gadget merchandise. Epiwafer gross sales have been made to Department of Defense clients and Nexperia.
TGAN has estimated the epiwafer element is about 15-20% of the $800 million GaN RF navy and telecom market, i.e. doubtlessly $120-$160 million, which could be seen as a most with 100% market share. There are different opponents on this market, and I’ve not discovered any information on their present or projected market share.
Customer Concentration
TGAN has been reliant on a number of clients for almost all of their income.
Three clients – Nexperia B.V., the U.S. authorities, and one different abroad buyer – collectively accounted for 78.1% of revenues for the yr ended March 31, 2022. Each of those three clients accounted for greater than ten p.c of revenues.
Financial Status
TGAN has operated at a web loss annually since inception. The AFSW wafer fabrication facility has operated at a loss at some stage in TGAN’s involvement and is predicted to proceed to take action. TGAN doesn’t at the moment, or count on, to pay dividends.
The monetary highlights from the 24 May 2022 earnings launch and name, and slide deck (observe the complete fiscal yr now ends 31 March 2022); non-GAAP:
- moved to NASDAQ
- $24.1 million income (full yr, up 89%)
- $4.9 million income This autumn (up 104% from FY21 This autumn)
- $4 million product income (This autumn FY22, up 190% from This autumn FY21)
- ninth quarter in a row of file product income
- $4.0 million web loss This autumn (vs. $5.2 loss This autumn FY21)
- $4.6 million working bills (vs. $4.5 million This autumn FY21)
- $1.6 million R&D
- 48% gross margin FY22
- transformed $15 million Yaskawa mortgage to equity, October 2021
- $33 million money at 31 March 2022 ($45 million as of 03 June 2022)
and have:
- order for 500,000 Gen4 FETs TO247 for 3Kw energy provides; at a “multi-dollar” ASP
- order for 50,000 items for 65 watt laptop computer energy converters
- 35 design-ins and 15 product in manufacturing in 300 watt to 4 Kw vary
and count on or goal:
- 50% 5 yr income CAGR
- 90% of income from merchandise in 2023
- money circulation constructive CY 2024
- goal 40%+ gross margins
- goal 20%+ working margins
- WorldWafer capability growth on-line mid calendar 2023
- AFSW fab capability growth in mid-2022 and 2023
Stockholders
When TGAN went public on 12 February 2020, about 28,200,000 shares of TGAN had been points to varied stockholders of the precursor firm. The stockholders of Peninsula Acquisition acquired 1,650,000 shares. TGAN recognized quite a few subsequent personal placements, promoting 23.1 million shares and netting $99.7 million, a few of which will be recognized.
| Date | Shares | Price / Share | Gross (Millions) | Net (Millions) |
| February 2020 | 5,380,000 | $4.00 | $21.5 | $19.7 |
| December 2020 | 5,000,000 | $3.00 | $15.0 | $13.6 |
| March 2021 | 250,000 | $4.00 | $1.0 | $1.0 |
| August 2021 | 1,000,000 | $5.00 | $5.0 | $5.0 |
| November 2021 | 6,600,000 | $5.00 | $33.0 | $32.1 |
| December 2021 | 1,673,152 | $7.71 | $12.9 | $12.6 |
| June 2022 | 3,200,000 | $5.00 | $16.0 | $15.7 |
| with warrants | 666,668 | $6.00 | ||
Immediately subsequent to the merger with Peninsula Acquisition Corp, Transphorm raised $21.5 million in personal equity financing, led by current buyers together with an affiliate of Kohlberg Kravis Roberts & Co L.P. (KKR), a brand new strategic investor Marelli, and new institutional buyers, as reported here 04 March 2020 by Semiconductor Today.
The 24 November 2021 TGAN proxy notes that as of 19 November 2021, there have been 51,393,770 shares of frequent stock excellent, and the main holders (> 5%) beneficially owned 84.1%, and had been:
Transphorm Stock Ownership (Transphorm)
See the proxy for the footnotes. In addition, the officers and administrators as a gaggle beneficially owned about 1.6 million shares, or 3%.
On 13 June 2022, TGAN filed a shelf registration protecting the potential resale of about 3.9 million shares of stock by present holders as detailed under.
Transphorm Shelf Registration (Transphorm)
Competitors
TGAN has identified competitors within the energy electronics market, sorted by the know-how used of their merchandise. They embody:
| Silicon Based | Silicon Carbide Based | GaN Based |
|
|
TGAN belies that legacy Si merchandise might at the moment provide a 2X price benefit for some parts. At excessive voltage (1200 volts or extra), SiC at the moment presents some efficiency benefits. Differentiation with different GaN opponents is by way of high quality, reliability, ease of use, and value.
No particular opponents have been recognized for the GaN episode wafer enterprise, however the focus right here is to be a U.S. based mostly provider, for each navy and industrial RF markets.
Valuation
We could make a again of the envelope estimate for potential valuation. Assume:
- Targeted 50% CAGR income development achieved; $24 million FY 2022 base
- –> $182 million income FY 2027, $615 million FY 2030
- 60 million shares excellent (present plus excellent choices)
- $3/share income FY 2027, $10/share income FY 2030
- P/S ratio between 2.5 and seven (TGAN at the moment 8.7 per Seeking Alpha)
- $7.5-$21 share value circa FY 2027, $25-$70 circa FY 2030
What do the professionals assume? They have bought so much to stock to classy buyers within the $4-5 greenback vary, every tranche reflecting their evaluation of worth, over the previous couple of years. According to Stock Analysis, the median 12 month value goal of 10 analysts is $9.18.
Risks
Several potential dangers to the funding thesis deserve point out.
TGAN in all probability has sufficient money; about $45 million in money as of 03 June, a $4 million per quarter present burn charge, and a goal to be money circulation constructive in 2024. However, they might be stretched to answer both issues or alternative with out elevating extra money.
Nexperia, TGAN’s largest buyer, can also be or change into a direct competitor. Among 15,000 different semiconductor merchandise, since at least 2020 Nexperia sells excessive energy GaN FETs. In November 2021 Nexperia demonstrated a 35 kW GaN energy module for EVs, collectively developed with Shanghai Automotive Electric Drive Co., LTD.
TGAN faces geopolitical dangers, much like different companies with the majority of their enterprise in China or with companies managed by China.
As the market for energy electronics for EVs grows, that is more likely to appeal to intense competitors, which can erode margins and make it tougher to seize and maintain market share.
Investor Takeaway
Transphorm seems to have wonderful technical capabilities, a robust patent place, a 15 yr historical past, and has efficiently attracted and retained vital buyers and companions. They have shipped actual merchandise in quantity.
As do their opponents, they see a big alternative in making use of GaN know-how within the energy electronics area.
They have prioritized greater energy GaN merchandise and seem to take pleasure in a lead in getting these merchandise to market. In the very excessive quantity decrease energy chargers market, they seem like enjoying catchup.
Their wafer enterprise might not prove financially vital in the long run, and in reality could also be a distraction.
My holistic evaluation is that as GaN merchandise seize a bigger market share in energy electronics, they’ll change into an more and more engaging acquisition candidate for one of many bigger companies – Infineon, Nexperia, Texas Instruments (TXN) – searching for market share or know-how.
For buyers with a 5+ yr time horizon, I feel there’s a higher than even probability that TGAN at present costs will present higher than market returns.
Personally, I now personal a small place in TGAN, and have a bigger restrict order in at a value under the present value. I view this as a speculative 10+ yr funding, with a possible 6-10X return over than time.