Digitimes GTAT Sapphire Cover Estimate is Meritless – By Matt Margolis
A report surfaced from Digitimes this morning estimating that GTAT can only produce 9-16.6% of the needed sapphire IPhone screens in 2014 for Apple. Digitimes’s estimate was based on a $30 per screen estimate and GT’s revenue estimate of $188-348m for sapphire materials. Oddly enough GT’s management never broke down their sapphire revenue between materials and sapphire equipment sales so I’m not sure what information Digitimes has received.
GT’s management had stated a few weeks ago during their latest conference call that sapphire would account for more than 80% of their 2014 revenue. Their 2014 revenue estimate was $600-800m, at 80%+ sapphire that would account for $480-640m in sapphire revenue. The company did not break out revenue between sapphire equipment (ASF furnaces) and sapphire material. However, it is well publicized that there is an exclusive contract with Apple that does limit the markets that GT can sell their sapphire ASF equipment.
I also spent over an hour earlier this week discussing GTAT and sapphire with Eric Virey from the French consulting company Yole Développement. Yole is going to be publishing their full report on the sapphire industry in the next week and GTAT and Apple will be headlined in this report.
Eric estimated that GT could make sapphire screens at $6.40 per unit and they would be sold for $8.00 unit. GT would make blocks of sapphire and send them off to Apple’s subcontractors in China for slicing and processing. He also estimated that 42m units could be made in 2014 and more than 85 million in 2015. I discussed the methodology for the calculation of the screens and there is potentially significant upside to the cover screen estimates for 2014 and 2015. One key assumption that drives the volume calculation is the screen size. Eric’s estimate was based on modeling a much larger Samsung phone, however Apple is likely to be under 5 inches and not close to 5.5 inches, which would increase the yield estimate by 30% or more. Another key input in determining the volume of sapphire screens is the days to make the boule. Eric’s estimate was based on a conservative estimate of 30 days when it could be 25 days or less, which would increase the yield 20%. Needless to say Eric’s estimates provided a scientific minimum quantity that could be produced from Mesa, but actual production may be significantly higher depending on the actual variables, which are not being shared by GTAT or Apple at the moment. Below is the information released by Yole summarizing the relationship with GTAT and Apple along with their cost and production estimates. Additionally, GTAT is under a strict NDA with Apple and would not be able to give any hint to their sapphire material revenue in 2014.
Full Disclosure I am long GTAT and no plans to buy or sell any holdings in the next 72 hours