Breakdown of GTAT’s Imminent Expansion, Renovation and Shift to Manufacturing Operations in Merrimack

Posted: April 23, 2014 by mattmargolis24 in GTAT Investor Information
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Merrimack Expansion, Renovation and Shift from R&D to Manufacturing

GTAT was granted approval on April 1, 2014 by the Merrimack Planning Board.  The memorandum dated March 27, 2014 sheds significant light on GTAT’s sense of urgency and dramatic shift in plans to respond to customer behavior, specifically global manufacturing partners.  GTAT will be constructing a 46,000 square foot building expansion and 117,532 square foot renovation of the existing facility located in Merrimack, NH at 243 and 247 Daniel Webster Highway.  The project is targeting an “aggressive” completion target of Fall 2014 based on the correspondence between Merrimack’s Community Development Director and the Planning Board Chairman.  The current Merrimack facility measures 117,532 square feet, the approved expansion would bring the facility to 163,532, which represents a 39% increase in the size of the facility.  The memo also details GT’s plans to shift the facility from an R&D and test facility to a manufacturing facility.  The memo cites “recent contacts at  global manufacturing partners are driving the need to grow their current facility.”

  • Recent contacts at global manufacturing partners are driving the need to grow their current facility
  • The existing facility will be renovated to support the company’s manufacturing processes rather than the research and testing operation currently in use.
  • The company would be making a significant investment in replacing their outdated and obsolete equipment and installing additional equipment to support their manufacturing use.
  • The applicant is requesting the waiver to allow the plan to be recorded in the fall, following boundary survey and completion of an as built plan

Merlin Interconnect Technology

GT’s Technology briefing held on March 14 introduced several new products that will have a significant impact on GT’s top and bottom line that are expected to come online by early 2015.  Some of the new products that are expected to grow significantly over next several years, include GT’s Merlin Advanced Metallization and Interconnect Technology along with their Hyperion 4.  The presentation on 3/14 indicated that Merlin was expected to be “ramp ready for solar scale volumes in CQ4, 2014.”  GT’s CEO Tom Guiterrez also indicated during the conference that if Merlin’s adoption rate approached 20% of the potential market than GT would likely look to bring the manufacturing of the product in-house.

According to GT’s presentation a 20% adoption rate of Merlin would be worth approximately $1B in annual revenue by 2018.

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Hyperion 4

GT’s presentation on 3/14 also indicated that Hyperion 4 is “now ready for commercialization” and that they were expecting orders for the  Hyperion Accelerator in 2014.  As of 5 weeks ago, GT was already working closely with a variety of Hyperion 4 interested parties across several target markets.  In the Power Electronics space they were working with a device manufacturer.  In LEDs they were engaged with lead customers and in the Consumer Electronics & Industrial Applications GT is focused on low-cost sapphire lamina.  In the Solar and Semiconductor space GT was already reviewing samples with a lead customer in Asia.  Lastly, in the Military and Medical market GT was working towards receiving a PO in 2014.  The Merrimack expansion and renovation of the current facility could be related to a significant order of Hyperion 4 tools that need to be delivered in 2015.

 

Hyperion 2

 

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Obscure Analyst Takeaway

GTAT’s expansion plans refer to “recent contacts at global manufacturing partners are driving the need to grow their current facility”.   The shift of converting an R&D and test facility into a manufacturing operation with a targeted completion date in just 6 months is a signal of a major deal or a number of significant deals in the works from one or several of GT’s global manufacturing partners.  Due to the timing and sense of urgency of the submitted expansion and renovation plan, I currently do not believe the facility expansion and conversion of the facility from R&D to manufacturing was included within the relative magnitude of GT’s 2015 or 2016 market opportunity slides that were presented on March 14.   Any recurring revenue will be generated from GT’s newest manufacturing facility located in Merrimack, NH beginning in 1H2015 is likely to be incremental to the current Wall Street 2015 and 2016 revenue and EPS projections. I’m modeling an additional $0.13 EPS contribution for every $100 million of sales that will be generated from this new manufacturing facility beginning 2015, assuming a 35% margin and 148 million shares outstanding. 

 

Full Disclosure: I am long GTAT and have no plans to buy or sell any holdings

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