by Matt Margolis
My unique research style includes sifting through various public information including articles, social media and the latest from the street. I stumbled upon a very interesting article last night by accident while I was laser focused on finding something else. I actually attempted to duplicate my search and find it a second time but was unsuccessful, thank goodness for web browsing history.
Canaccord Genuity Conference August 17, 2012
The article dates back to August 18, 2012, which happens to be the next day following the Canaccord Genuity conference that was hosted on Friday August 17, 2012. For the long-term shareholders they will remember this conference and the infamous upgrade from Canaccord Genuity’s analyst Jonathan Dorsheimer, who cited GT management’s body language regarding sapphire smartphone cover glass. Jonathan’s note regarding the upgrade as reported by the Street.com is below:
“We are upgrading GTAT shares on increased buzz around potential smartphone applications…We believe that the smart phone cover “glass” opportunity for sapphire is becoming closer to reality based on our work in the supply chain and GT management’s body language.”
As it turned out, Jonathan was wrong on timing and the sapphire smartphone cover glass opportunity was not as close as he first thought. But my biggest question is what did the Canaccord analyst notice from GT management’s body language. I am the first to admit that there is tremendous value gained by observation and sometimes a person’s body language tells more of the story than the actual words spoken.
The August 18, 2012 Article
The August 18, 2012 article that might hold the key detail behind the Apple contract was published by Gulfnews.com. The article is short and sweet and it covers the Canaccord Genuity conference. The Canaccord Genuity conference was not focused on sapphire but focused on GT’s investment into continued growth and diversification (Sounds a lot like their Technology Conference in March!). The specific quote from the Gulfnews.com article is below,
Sapphires may replace glass on mobile phones and tablets, chief executive officer Thomas Gutierrez said at a Canaccord Genuity conference on Friday. GT Advanced, which makes tools to grow sapphires, has sought non-solar applications for its technology as a global glut of panels reduced demand for systems that make polysilicon and photovoltaic wafers, Gutierrez said in May.
GT’s CEO Tom Gutizerrez indicated on August 17, 2012 that sapphire may replace glass on not only mobile phones but also tablets. I know what you are thinking right now. Why would this have anything to do with Apple? GT’s CEO made a generic statement why would this hold the key to the Apple deal?
The Power of the Mind and the Body
I think it’s very important to understand the context behind TG’s comment made on August 17, 2012 during the Canaccord Genuity Conference. Why would TG say, “Sapphires may replace glass on mobile phones and tablets.” Why would Canaccord’s analyst upgrade shares of GTAT based on “GT management’s body language” surrounding the sapphire cover glass opportunity?
In order to fully understand Canaccord’s comment and put some context behind TG’s comment I needed to find something that would explain what could possibly be going on with GTAT at the time of this conference. TG has always been confident so he must have had his normal swagger and then some during this conference back in August 2012. I believe the answer to this riddle, of the mind and the body was hidden in plain view, within a key document that would be released to the public 15 months later. On November 4, 2013 GT Advanced Technologies and Apple announced a sapphire deal but the answer to this riddle lies within the Master Development and SOW agreement, which was signed on October 31, 2013. As you can see from the image below, GT Advanced Technologies and Apple signed their confidentiality agreement on August 24, 2012.
The plot is now beginning to thicken as the dots get connected. If we put ourselves back in time knowing that GT was in the midst of signing the confidentiality agreement with Apple for sapphire cover screens it would make a lot more sense why GT’s management could not withhold their excitement. The sapphire cover screen was one of the primary focuses for GT’s management and they were going to be handed the key to Apple’s device empire. Based on additional information provided from the Q3 2012 Conference Call GT hah been working closely with Apple for several months on sapphire cover screens. According to GTAT, we have already gone beyond, “the NDA stage, we’ve delivered furnaces. We’ve delivered material now. We’ve delivered sample screens, actually, in some cases. And so it’s gone well beyond”.
Q3 2012 Conference Call Transcipt
The last major spoke that spins this wheel can be found inside the Q3 2012 conference call transcript. The conference call was held on November 7, 2012 just 11.5 weeks after GT signed the confidentiality agreement with Apple. The biggest question is how will GT’s management handle the recent development with Apple and what will they say about the sapphire cover screen opportunity? I have read this transcript numerous times but putting the Canaccord Genuity Conference body language, the comments made during the Canaccord Conference and the fact that GT and Apple signed the confidentiality agreement in August just a week after the conference might give you the chills. The bullet points below came from GTAT’s Q3 2012 conference call transcript and can be read for free in its entirety at Seeking Alpha.
- #1 High-volume, scalable, low-cost sapphire production is now possible with the commercial availability of our technology, and breakthrough fabrication technologies have and will continue to drive out significant costs.
- #2 While we’re not able to reveal all of the details behind our published range due to customer and partner sensitivity, here are some important points to consider.
- #3 This does not reflect the other significant cost reductions that we believe can be achieved as we further optimize the ASF growth process for this application through adjustments, such as optimized boule size, shorter cycle times and lower cost consumables.
- #4 There are some really innovative technologies that are being developed by ourselves and our fabrication partners that would bring the back end down very substantially in the fabrication area.
- #5 As a result of these factors and several other proprietary data points that we’re not able to share, we are confident that the cost targets are achievable and acceptable.
- #6 And unfortunately, with the big smartphone players, you won’t know until it happens.
- #7 And that’s what they’re all about, it is out-surprising each other.
- #8 We’ll start laying down assets second half of next year, but you won’t see a high-volume phone with sapphire on it, I don’t think, until 2014
- #9 I think the other thing that’s gone beyond the NDA stage, we’ve delivered furnaces. We’ve delivered material now. We’ve delivered sample screens, actually, in some cases. And so it’s gone well beyond, “Let’s sit in a room with an NDA and talk about it.”
- #10 There’s been a lot of discussion regarding the cost of sapphire for cover screens and question as to whether the cost range that we recently published of $10 to $20 above current glass solutions is achievable.
- #11 But we’re confident, okay, that we can be inside that box. And we’re also confident that, that’s just the initial box, okay.
I want to address some of the bullet points and provide even more evidence that sapphire screens are coming to the iPhone and iPad and likely across everything else Apple makes.
Bullet #1 GT cites that, “High-volume, scalable, low-cost sapphire (screen) production is now possible with the commercial availability of our technology“. This comment is nearly identical to the press release (see below) from GT Advanced announcing the Apple contract. The language might be ambiguous but the statement is nearly identical to the Q3 2012 discussions related to sapphire cover screens.
GT has accelerated the development of its next generation, large capacity ASF furnaces to deliver low cost, high volume manufacturing of sapphire material.
Bullet #4 Innovative Fabrication Techniques – On September 20, 2012 Apple filed for their “Multi-Step Cutting Process” patent. The patent covers Apple’s laser cutting techniques, which is an extremely innovative fabrication technique and was filed between the signed confidentiality agreement and GT’s Q3 2012 conference call.
Bullet #6 Big Smartphone Players – You never know when it happens and they like to suprise each other. This sounds very similar to the comments TG made during his appearance on Fast Money on CNBC when asked by the host of the show when sapphire would start showing up. Interesting!
Bullet #8 GT will start laying down assets the second half of year – GT announced during its Q4 2013 results that they deployed $180m of Capital Primarily in Arizona, which was consistent with plans GT announced nearly a year prior to lay down assets for sapphire cover screens production.
Bullet #8 You won’t see a high-volume phone with sapphire on it until 2014 – The only known customer besides Apple that GT had lined up for sapphire screens was Canonical (Ubuntu Edge) and Apple is the only one of the two companies who would sell high volume phones with sapphire.
Did GT’s management give away proof through their super confident body language that they were just a few days away from signing a confidentiality agreement, that they knew would lead to a multi billion dollar annual contract with Apple by the end of 2013?
Did TG spill the beans and clearly indicate that GT would be making sapphire cover screens for Apple phones and tablets during the August 17, 2012 Canaccord Genuity Conference?
Did GT’s management change their tune dramatically during the Q3 2012 conference call and shift significant focus on their recent sapphire developments specifically the signed Apple confidentiality agreement and how it would impact their operations in 2013?
Did GT’s management spend nearly half of their Q3 2012 conference call discussing; sapphire cover screens, sapphire NDA’s, cost of sapphire screens, laying down assets a year in advance and introducing the expected timing of the first high volume sapphire screen?
My answer to all of these questions is YES! YES! YES! YES! How about you? But hey what do I know, I’m just the Obscure Analyst.
If you are interesting in following my tweets, asking me a question or just want to give feedback or say hello you can follow me @sapphirecover24 on Twitter.
Full Disclosure: I am long GTAT and have no plans to buy or sell any holdings over the next 72 hours