Transphorm, Inc. (NASDAQ:TGAN) is a global leader in the development and commercialization of gallium nitride (GaN) power electronics solutions. The company's disruptive, best-in-class technology is addressing a large and growing market opportunity, as GaN emerges as the future of next-generation power systems.
Business Overview
Transphorm's Vertically Integrated Innovation Model
Transphorm's unique vertically integrated innovation model leverages one of the industry's most experienced GaN engineering teams, with over 300 years of combined experience, at every stage of development: device design, materials growth, device fabrication, packaging, circuits, and application support. This approach, backed by one of the GaN power industry's largest intellectual property portfolios with access to over 1,000 worldwide patents, has yielded the industry's first automotive-grade AEC-Q101 and JEDEC qualified high voltage GaN FETs.
Transphorm's innovations are designed to move power electronics beyond the limitations of silicon and provide customers with the potential to achieve higher efficiency (e.g., titanium-class performance in power supplies), higher power density, and in some designs, an overall lower system cost.
Financials
For the fiscal year ended March 31, 2023, Transphorm reported annual revenue of $16.5 million and a net loss of $31.7 million. The company's annual operating cash flow was -$26.5 million, and its annual free cash flow was -$33.4 million.
In the most recent quarter, Q2 fiscal 2024, Transphorm reported revenue of $5 million, with product sales accounting for 70% of the total. This represents a 36% increase in revenue compared to the same quarter last year. The company's gross margin in the quarter was 23%, up from 12% in the same period last year.
Looking ahead, Transphorm expects to see continued sequential product revenue growth in the current third quarter, driven by its strong design-in momentum and robust pipeline. The company's leadership in high-power GaN remains strong, with its pipeline now exceeding $475 million, and its products surpassing more than 200 billion hours in the field, further demonstrating the superior reliability of its technology.
Expanding Leadership in Key High-Power Verticals
Transphorm is expanding its leadership in three key high-power verticals: computing power for data centers, AI machines, and blockchain; energy and industrials, including micro inverters, UPS, and servomotors; and electric vehicles, initially with two and three wheelers, followed by four wheelers.
In the low-power space, the company has secured 15 new design-ins for fast chargers, taking the total to more than 115, with over 30 now in production. Transphorm's system-in-package (SiP) strategy is also gaining traction, with more than five products now in design-in and two SiP products released.
Transphorm's high-power design-in pipeline has grown by 33% sequentially to over 100, with more than 35 now in production. The company has introduced several new high-power surface mount products, including the TOLL and TOLT topside cooled packages, a first for GaN. It is also sampling a 4-pin TO-247 high-power GaN product that is pin-to-pin compatible with silicon carbide MOSFETs, while exhibiting 25% lower losses at 5 kilowatts compared to the latest silicon carbide MOSFETs from global top three suppliers.
Reliability and Performance Advantages
Transphorm's GaN technology has demonstrated superior reliability and performance compared to competing e-mode GaN solutions. Recent high-temperature full voltage stress testing on Transphorm's SuperGaN products revealed a 400% increase in resistance, i.e., losses, for the e-mode GaN case after just 500 hours of reliability testing. This level of degradation is unacceptable for high-power applications such as servers, industrial equipment, and automotive, where Transphorm's GaN technology excels.
Transphorm's 1200V GaN technology has also progressed well, with models and data sheets drawing significant interest from EV customers, some of whom are even starting to view GaN as a possible future replacement for silicon carbide. The company's efforts to improve operational capacity and costs have led to continued higher productivity from its Japan epi-reactors, and it expects further capacity from qualification at its global wafer reactors by the start of fiscal year 2025.
Partnerships and Ecosystem Expansion
Transphorm has established a strong network of blue-chip partners and is expanding its ecosystem. The company's manufacturing scale expansion efforts remain ongoing, with global wafer reactors now in qualification and expected to be completed by the end of fiscal year 2024 to ramp in fiscal 2025.
Transphorm's AFSW wafer fab continues to operate on target and has sufficient capacity plans in place for fiscal year 2024 and 2025. The company is also potentially looking to add a third partner to the AFSW joint venture, which could reduce its ownership to roughly half of the current levels in fiscal 2025, while maintaining IP ownership for its technology in the fab.
Transphorm has also achieved several key milestones, including a 12 kilowatt output from a single device in a half-bridge topology without any paralleling, which promises over 30- to 60-kilowatt scale inverters when used in three-phase single and parallel mode. This is an important step towards enabling EV inverters with gallium nitride.
Strategic Review and Financing Initiatives
Transphorm recently engaged Bank of America, BofA Securities, to act as its financial adviser in connection with an ongoing strategic review to enhance stockholder value. The company is systematically pursuing multiple options that may include the merger or sale of the company. Transphorm is also working to secure non-dilutive debt financing and has meaningful discussions on certain licensing possibilities to extend its financial runway well into fiscal 2025.
Liquidity
As of December 31, 2023, the company had $8.0 million in cash and cash equivalents. Transphorm's shareholders' equity was $23.7 million at the end of the quarter, an increase from $19.6 million as of March 31, 2023. The company's operational cash burn, excluding capital investment, decreased significantly in the quarter from $6.8 million to $5.1 million, driven primarily by improved collections and ongoing tight spend management procedures.
Risks and Challenges
While Transphorm has made significant progress, the company faces several risks and challenges, including intense competition, the need for continued investment in research and development, and the ability to successfully execute on its growth strategy and manufacturing expansion plans. The company's ability to continue as a going concern will also depend on its ability to raise significant additional capital to fund its operations.
Conclusion
As one of the only pure-play GaN power semiconductor companies in the world with volume production in both the low-power and high-power segments, Transphorm is well-positioned to capitalize on the growing demand for GaN-based power electronics solutions. The company's unique vertically integrated innovation model, superior technology, and strong partnerships provide a solid foundation for long-term growth. With a robust pipeline, continued design-in momentum, and strategic initiatives to enhance shareholder value, Transphorm is poised to play a leading role in the future of power electronics.