Archive for April, 2014

by Matt Margolis

SDR ReactorFilament Production SystemHydrochlorination

Nearly 7 weeks ago, GT Advanced Technologies announced the signing of a $336m supply agreement with Cosmos Chemicals Berhad to provide equipment and technology for a 25,000 metric ton annual (MTA) polysilicon facility.  At the time the announcement the funding of the agreement was not certain, however news that surfaced yesterday indicate that Cosmos has commenced the funding raising efforts and the overall project has the support of the state governments and other agencies.

GT Advanced Technologies Inc., (Nasdaq:GTAT), today announced the signing of a $336 million supply agreement with Cosmos Chemicals Berhad to provide equipment and technology for a 25,0000 metric ton annual (MTA) polysilicon facility, a project sponsored by Saudi Arabia based Project Management & Development Company (PMD), that will be located in Sarawak, Malaysia.  Under the terms of the agreement, which is subject to financing, GT will supply its complete suite of polysilicon production equipment and technology including engineering services, hydrochlorination, SDR™ CVD reactors, filament production, and polysilicon processing. Cosmos Chemicals Berhad is currently securing final financing for the project. Contingent upon completion of this step, GT expects the project to commence in phases beginning with the commissioning of engineering work followed by an equipment order.

Yesterday, Bid Ocean Network reported that Cosmos Petroleum and Mining has commenced the fund-raising for the proposed Polysilicon Plant in Sarawak.    According to the news source the  National Bank of Abu Dhabi (NBAD) was appointed the Financial Advisor and Lead Arranger for the fund-raising.   The plant is expected to be completed and producing polysilicon in 2016.  Based on the estimated completion and production target of 2016, it means that GT’s $336m of revenue will likely be spread over the 2H 2015 and 1H 2016.   Highlights from the Bid Ocean Network update are below:

 The Cosmos Petroleum & Mining Sdn. Bhd., an affiliate company of the Project Management & Development Company (PMD), is raising funds for the development of the proposed 25,000-tonne per annum Polysilicon Manufacturing Plant in the Samalaju Industrial Park, Bintulu, Sarawak.

The National Bank of Abu Dhabi (NBAD) was appointed the Financial Advisor and Lead Arranger for the fund raising.

The plant was granted some 250 acres of land at the Samalaju Industrual Park by the Sarawak State.

The project has the support of the state government and other agencies, being part of a major heavy industrial manufacturing development in Sarawak. The development will provide job opportunities for the local people.

The MIDA and MITI have issued a manufacturing license to the project. It has also been decided ahead that the Sarawak Energy Berhad will supply electricity to the Project.

The plant is expected to come into operation and production by 2016.

 

The summary of the Cosmos project is below, GTAT will be providing the Technology.

 

cosmos

 

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

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Apple’s mutli-touch sensor patterns and stackup patent was issued on 4/24/14.   The patent is actually a continuation of a similar patent issued in November 2009.  The 2009 patent goes by the same name but Apple has made significant improvements to the claims of the previous multi-touch sensor patent.  The patent’s focus is on multi-touch sensor panels that are stacked and thin which make them more flexible and particularly well suited for curved or other non-flat touch sensor panels.  Apple applied for the patent on December 19, 2013 and the patent was issued just 5 months later.

The date of the latest patent application falls just a month after Apple opened up the  Mesa, AZ sapphire plant.  Also in January, Apple was in the market for design engineers that would focus on the iPhone/iPod inside  Apple’s Mesa location.  The 2009 issued patent and the 2014 issued patent both include sapphire as a cover option.  However, if Apple is going to drastically change the iPhone 6 and introduce sapphire cover screens and a curved display it would make sense to experiment and file the latest application in December 2013 after the Mesa plant opened.    Perhaps Apple has already determined that they would switch from flat  to curved displays for the next generation iPhone?  Perhaps the switch from flat to curved displays explains why Reuters was reporting that the 5.5″ iPhone was experience touch screen display yield challenges?  I have to believe a flat display panel at 5.5″ would be much easier to manufacture than a curved display.

The newly issued patent claims indicate that Apple has put in some significant time and effort focused on improving the functionality of their multi-touch sensor patterns that will improve the user’s overall experience while handling a device with a curved screen. The number of individual claims has decreased from 39 to 14, however the precision of their 2014 claims versus the 2009 claims is astounding.  This newly issued patent might indicate Apple is very close to introducing a curved iPhone screen in the not to distant future.

 

Example of the 2009 Patent Claims

1. A touch sensor array comprising:

a first conducting layer comprising a row trace and a column trace;
a second conducting layer;
a first dielectric layer that separates the first conducting layer and a second conducting layer; and
one or more vias that route the column trace or the row trace to the second conducting layer prior to an intersection of the column trace and the row trace.
14. A touch sensor array comprising:

a plurality of row traces arranged in comb pattern configurations; and
a plurality of column traces comprising cross elements arranged between fingers on the comb pattern configurations.
Example of the 2014 Patent Claims

1. A touch sensor array comprising: one of a plurality of row traces or column traces arranged in pairs of opposing and spaced apart comb pattern configurations having opposing fingers facing one another; and the other of the plurality of row traces or column traces comprising a plurality of cross elements substantially perpendicularly disposed with respect to the opposing fingers on the comb pattern configurations, with each cross element having perpendicularly disposed traces corresponding to the opposing fingers of the comb pattern configurations.

9. A touch sensor array comprising: a plurality of row traces arranged in opposing comb pattern configurations, each opposing comb pattern configuration having finger elements extending toward the opposed comb pattern configuration, and defining finger regions between the finger elements; and a plurality of column traces comprising plural rows of traces and perpendicular cross elements, the rows of traces arranged parallel to the finger elements and extending between each of the finger elements within the finger regions of the opposing comb pattern configurations, and the cross elements extending between the opposing comb pattern configurations continuously over multiple row traces but not extending between the finger regions.

14. A multi-touch mouse comprising a touch sensor array comprising: a plurality of row traces arranged in opposing comb pattern configurations, each opposing comb pattern configuration having finger elements extending toward the opposed comb pattern configuration, and defining finger regions between the finger elements; and a plurality of column traces comprising plural rows of traces and perpendicular cross elements, the rows of traces arranged parallel to the finger elements and extending between each of the finger elements within the finger regions of the opposing comb pattern configurations, and the cross elements extending between the opposing comb pattern configurations continuously over multiple row traces but not extending between the finger regions.

 Patent Abstract

Capacitive multi-touch sensor panels in which both row and column traces may be formed on a single conducting surface are disclosed. These stack-ups may be made thinner and more flexible allowing them to be particularly well-suited for curved or other non-flat touch sensor panels, such as those that might be present on a mouse or other device designed to be grasped by a user’s hand. Curved sensor panel arrays that may be formed from flat substrates are also disclosed. These sensor panel configurations may include channels around the periphery of the array. These channels allow the flat array to lie flat when applied to a curved surface, such as the inside of the curved surface. The pattern of the touch sensor elements may be adjusted across the array to avoid the channels.

[0055] FIG. 4 illustrates an exemplary capacitive touch sensor panel 400 fabricated using a double-sided ITO (DITO) substrate 402 having column and row ITO traces 404 and 406, respectively, formed on either side of the substrate, and bonded between cover 408 and LCD 410 using transparent adhesive 412 according to embodiments of this invention. Substrate 402 can be formed from glass, plastic, hybrid glass/plastic materials, and the like. Cover 408 can be formed from glass, acrylic, sapphire, and the like. To connect to column and row traces 404 and 406, respectively, two flex circuit portions 414 can be bonded to directly opposing sides at the same edge of DITO 402, although other bonding locations may also be employed.

Computing System

Figure 4

by Matt Margolis

I apologize for the quirky article name but I wanted a tongue twist that everyone would remember.   In all seriousness there is an amazing solar rebirth that is underway and one of the solar growth areas fits inside the bulls-eye of Merlin’s target market.  Today most of us witnessed our portfolio’s that were filled with momentum stocks such as GTAT and Micron get annihilated.   The good news is the type of stock price movements that we saw today are gifts for investors, who had money left on the table and could take advantage of today’s sell off and add to their positions of their favorite companies.  There was one large exception to today’s sell off that I wanted to discuss and that company is called SunPower (SPWR), which traded up 6.75% on a day when then other solar names got taken to the woodshed.  SunPower reported earnings after the closing bell on Thursday and I wanted to dig into and share some of the comments and presentation material shared by management during the Q1 2014 conference call.

One of the first slides in SunPower’s Q1 2014 earnings presentation included the current state of installed PV efficiencies for the top 10 PV suppliers.  As you can see from the chart below the efficiency rates are mostly hovering at 17% with SPWR as the only PV supplier above 20%.  Any changes to the PV module design that also improves PV efficiency will certainly open up the wallets of the top 10 PV suppliers.

PV Module Efficiencies

Slide 6 of SunPower’s presentation (below) is something that gets me very excited about Merlin’s Multiplying Market, which is the roof top market place.  Sunpower touts their reliability and efficiency benefits of their rooftop systems.  GT’s Merlin Technology PV modules improve efficiency, are more durable and they will weigh substantially less than traditional PV modules due to Merlin’s patented design that can reduce the usage of silver paste by up to 80%!

It clearly shows why customers choose SunPower for their rooftop systems. On a typical space-constrained rooftop, SunPower panels produce over 50% more energy than conventional solar systems in the first year of operation. By year 25, this advantage will grow to 100% due to superior reliability and much lower performance degradation rates. The bottom line is that SunPower customers generate over 75% more energy over the lifetime of their systems. As customers and financiers become more educated about panel degradation rates and system residual value, SunPower’s technology advantages and associated economic benefits become increasingly clear. When incorporated into a yield co, or a lease vehicle, these long-term reliability and performance advantages are directly monetized. Chuck will share more information about our current thinking about yield cos and other monetization options. The primary driver behind this lifetime energy advantage is our higher panel efficiency.

Thomas H. Werner – Chairman, Chief Executive Officer and President You probably have a pretty good sense that there are very few markets where the Power Plant business and the rooftop business are big. It’s really Japan, North America. There’s a couple of emerging markets where they’re both big. And then what you see is one dominates the other. Europe is a rooftop business. Middle East is a Power Plant business. China is largely a Power Plant business.

(Seeking Alpha)

 

roof top

 

SunPower is Planning “Significant” Capacity Expansion Within the Next Few Quarters

We plan to produce between 50 and 100 megawatts in 2015 and more than 250 megawatts in 2016. With strong and growing demand for our panels and a stable pricing environment, our expansions team is highly motivated to meet or exceed these targets. Fab 4 will produce our most efficient solar cells to date, enabling panel cost reduction of up to 35%. As I mentioned in the last call, we’re also evaluating locations for our next significant capacity expansion and expect to make a decision on the additional capacity within the next few quarters. (Seeking Alpha)

 

Magical Merlin Delivering Cost Savings and Efficiency Improvement

 

Merlin 2 Merlin 1

GT’s Magnificent Merlin demonstrated a cell efficiency improvement of 0.7%, which doesn’t sound like a lot but it actually amounts to over a 4% PV module efficiency improvement (0.7% improvement divided by 17% base).   If you gave me a 4% raise in pay and told me that Merlin could reduce the effort (labor cost) it took to do my job by greater 10% I would be knocking on the door to sign up.  Merlin not only delivers an improved efficiency rating it also will contribute greater than a 10% reduction in the total system cost of solar.

SunPower is excited about their rooftop systems and global opportunity today, but what if  they added Merlin to their PV system lineup?   I can already envision the marketing message for potential customers….

 

SunPower’s PV systems manufactured coupled with GTAT’s Merlin Modules….

 

  • Dramatically reduces the total system cost by over 10%
  • Dramatically reduces the solar system weight
  • Dramatically reduces installation time
  • Dramatically improves the durability of the solar system
  • Dramatically reduces installation time
  • Dramatically reduced solar system weight allows for installation on nearly every rooftop
  • Dramatically improves our existing market leading PV efficiency %
  • Dramatically improved flexible design allows for new places to install solar modules

Drama is the first word in Dramatically.  However, unlike a play that is enacted on stage by actors for onlookers to enjoy, Magical Merlin’s mystical powers are real and Magnificent and will end up Multiplying  existing and creating new Market Opportunities out of thin air.  Just like magic!

 

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

by Matt Margolis

Apple submitted two applications to the Foreign Trade Zone (FTZ) No. 221 for approval.  Apple’s application for Sub Zone designation at the Apple/GT facility was submitted to the FTZ office on December 17th, 2013 and Apple’s application for “Interim” Production Notification Application was submitted to the FTZ office on December 30th, 2013.  The Interim Production Notification Application indicated that Apple had an aggressive go-live timeline of February 2014.  The Apple/GT facility was granted a temporary C-of-O (Certificate of Occupancy) to commence with occupancy and production of Quick Start 140 area on January 10th, 2014.  Quick start 140 was located in Module 1 of the Mesa facility and contained 140 “tools,” which are also know as sapphire growth furnaces.

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Apple’s application for Sub Zone 221 designation was submitted to the FTZ office on December 17th, 2013. The Apple/GT facility was formally granted Sub Zone approval on March 19th, 2014.  The Sub Zone approval was the final step required before Apple and GT could begin in earnest to manufacture intermediate components for consumer electronics for exports as indicated in their original Sub Zone application.

Apple Inc./GT Advanced Technologies Inc., Mesa, AZ, 221A, approved 3/19/2014 (S-5-2014)

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Another interesting fact to point out is the Master Development and SOW agreement between Apple and GTAT is that the agreement requires any additional furnace purchases, would be negotiated in good faith prior to the second Milestone Payment made under the Prepayment Agreement.  GT reported during their Q4 2013 conference call on February 24th, 2014 that they had received the second Milestone Payment from Apple.  The receipt of the second Milestone Payment from Apple signals that the furnaces that were required to be purchased and deployed as part of this agreement were all ordered on or before February 24th, 2014.

According to Port Authority records, sapphire growth furnace deliveries began heading to Mesa, AZ on December 2nd, 2013 and the last known delivery was recorded on March 10th, 2014.  I have tracked 1,265 furnace deliveries that have passed through Port Authority.  Additionally, any and all domestic furnaces that did not pass through Port Authority (i.e. truck) would not be caught in my sapphire furnace fishing net.

I have assumed GT deployed $251m of PPE ($180m) and Inventory ($71m), which would account for 837 additional furnaces inside Mesa giving me a total confirmed/estimated of 2,102 furnaces.  The book cost that GT assigned to each furnace that was deployed and taken out of inventory could be substantially lower than $300,000 per furnace.  If, GTAT’s price per furnace is actually $30,000 lower than my estimate it would add almost 100 furnaces to my estimate, conversely a $30,000 increase would decrease my estimate by 100 furnaces.

Based on my correspondence with a sapphire industry expert, GT had previously touted their ability to ramp up 500 furnaces per month at ASF equipment customer locations.  However, GT has already informed investors that they dedicated a vast majority of their ASF capacity to the Mesa, AZ sapphire effort, which would likely drive their drive GT’s maximum furnace ramp north of 500 furnaces per month.  Based on the furnace delivery dates and GT’s touted ability to ramp up efforts and focus on Mesa I’m becoming hard pressed NOT to believe that the Apple’s Mesa Sapphire plant WAS  likely operating at or near full capacity just days after the receiving the official unlimited go-live approval from the FTZ on March 19th, 2014.

 Tracked Furnace Deliveries and Estimated GTAT Furnace Deliveries

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My Estimated # of Furnaces Purchased/Deployed in Mesa, AZ

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Apple’s purchase of additional Furnaces and Similar Furnaces will be made under the terms of Apple’s Master Equipment Purchase Agreement (the “MEPA”).  Apple and GTAT will negotiate in good faith to execute the MEPA as soon as possible following the Effective Date, but in any event prior to the second Milestone Payment made under the Prepayment Agreement. Prepayment Agreement

 

We have dedicated the vast majority of our current ASF capacity to support this multi-year commitment.  This has limited our ability to take additional ASF business in the near term and has restricted our ability to ship backlog on short notice (GTAT Q3 2013 Prepared Remarks)

 

GTAT 2012 Presentation on their Sapphire Equipment

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Apple’s Entire “Interim” Production Notification Application is Below

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

 

by Matt Margolis

GT Advanced Technologies reported their Q4 2013 financials on 2/24/14.  During the call GT indicated that they spent $50 million of capital in Q4 2013 and they deployed over $180 million of PP&E mostly in Arizona.   They also indicated that they planned on spending $500-600 million in capital expenditures in 2014.  Apple’s  prepayment amount of $578 million was to fund the purchase of furnaces, I am now assuming that $50m of the $578m was spent in 2013 and the remaining $528m will be spent over the 1H of 2014.

However, GT’s latest filing Form DEF 4A filed on 4/22/14, right in the middle of GT’s compensation program details indicated that GT, “re-directed its sapphire equipment inventory and supply chain capacity to preparing for its expanded sapphire material operations”. GT’s supply chain capacity re-direct likely indicates that GT shifted their current sapphire production equipment from other clients to Apple and began growing sapphire boules for Apple beginning in Q4 2013, from their production facility in Salem, MA.  I know for certain GT was looking to hire sapphire growth employees for second and third shift in Salem during Q4 2013 as evidenced by various job postings.  This recent filing might provide the most significant proof yet, that GTAT began growing sapphire for Apple during Q4, 2013.

NEOs did not receive a bonus payment under the 162( m) Incentive Plan. During the latter part of Fiscal 2013, as the Company re-directed its sapphire equipment inventory and supply chain capacity to preparing for its expanded sapphire material operations, it became apparent that the metrics forthe 162(m) Incentive Plan payout, established early in Fiscal 2013, would not be met.

According to GT’s Q4 2013 Investor Financial Summary GT’s inventory in Q4 dropped $71m, from $160m to $89m, which most likely represents the amount of  sapphire growth furnaces that were re-directed from GT’s inventory to the Mesa, AZ sapphire plant during Q4 2013.

Sapphire Inventory

I had previously estimated the number of ASF furnaces likely to land inside the Mesa, AZ facility at 2,300 furnaces.  Based on the sapphire equipment inventory re-direct indicating in the filing and my understanding of the language in the $578 million prepayment agreement I am upping my ASF furnace estimate to 2,800 to 3,000 from 2,300.

 

ASF Furnaces

 

 

My previous ASF Furnace Estimate/Assumption from March is Below

GT announced that they had deployed $180m of PPE (majority to Apple). Import records indicate that GT HK’s worldwide operations shipped furnaces from HK to Mesa, AZ.  GT management also stated, that they would spend $500-600m in capital  expenditures, with most of the heavy lifting occurring over the first half of the year.   Assuming GT is spending $500m of capital expenditures and $180m that is being deployed from existing PPE this would allow them to purchase approximately 2,300 furnaces to grow sapphire boules.

 

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

by Matt Margolis

 

Highpoint Engineering was brought in to begin planning the project approximately 2 weeks before the April 1, 2014 Merrimack Planning Board presentation.  It is likely, based on the dates above that GTAT was presented with a sapphire materials opportunity sometime in early March that will ultimately result in GT’s strategic decision to shift their R&D facility to a sapphire growth, product creation and shipping operations.

GT’s Merrimack construction plans include building construction and interior work that will displace the administrative services functions.  The expansion includes a 23,000 per floor additional that is 2 floors and measures 65 feet by 350 feet long.

GT’s exterior infrastructure improvements include installing up to 6 transformers and up to 1 to 2 cooling towers.  Currently the site has 1 inert “Argon” tank and the plan is to add 2 inert gas tanks, one consisting of Helium and one consisting of Nitrogen.  The additional inert gas tanks will measure approximately 8 to 10 feet in diameter by 15 to 18 feet in height.  The facility will include backup generators and UPS systems, since GT can ill afford a nanosecond of power disruption while growing sapphire boules.

The facility will accommodate 307 parking spaces up from 221 spaces currently at the location.  The number of parking spaces were noted as adequate because the operation will include “swing shift” employees (24/7) operations.  The internal shift from R&D to Manufacturing has already begun within the existing facility.  The lead engineer from Highpoint Engineering has indicated that there has been a significant uptick in truck traffic over the last few weeks (3/17 /14 to 4/1/14) to move equipment and prep the building for manufacturing.  The equipment operation is lessening and t he manufacturing process is increasing to grow boules, create a product and ship it out.  The facility is expected to have 2 loading docks for shipping and receiving.

Merrimack Site Plan Image (The expansion of plant is the yellow sliver)

Merrimack site plan 1

 

Merrimack site plan 2

Merrimack site plan 3

 

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

 

According to GTAT’s latest SEC filing on 4/22/14, GT has received the 3rd prepayment from Apple, which leaves just one prepayment remaining. The final prepayment from Apple is expected to be received based on the agreed upon date in the prepayment agreement, which is not currently available to the public.

The Company and Apple entered into a Master Development and Supply Agreement and related Statement of Work (or the “MDSA”), pursuant to which we will supply sapphire material to Apple. In connection with this supply arrangement, we also entered into a Prepayment Agreement with Apple pursuant to which we will receive $578 million (the “Prepayment Amount”), in four separate installments, as payment in advance for the purchase of sapphire goods, of which $225 million was received in Fiscal 2013 and the second and third installment were received in 2014.

The expanded sapphire material operations are expected to generate a more stable revenue stream than the capital equipment business. This factor is expected to be beneficial to the long-term prospects and long-term value of the Company.

In order to prepare to meet the sapphire material supply obligations under the MDSA, management made a strategic decision to allocate much of its sapphire and other resources to the establishment of our expanded sapphire material operations. These decisions had a negative impact on the financial results for Fiscal 2013 as short-term revenue opportunities from equipment sales for the second-half of Fiscal 2013 had to be delayed in order to prepare to meet the sapphire material obligations to Apple. The Company’s Board of Directors supported this strategic decision of management and believes it will result in a more sustainable and value generating company.

The details available regarding the timing of prepayments between GTAT and Apple are below:

2. Prepayment.

(a) Subject to Sections 2(c) and (d) below, and provided that, at the time for each payment (i) no Trigger Event (as defined below) has occurred and (ii) there are no ongoing disputes under the Facility Lease Agreement which have a material impact on the use of the manufacturing facility to be located in Mesa, AZ that Apple is purchasing and developing (the “Mesa Facility”) for its intended purpose, Apple will make the Prepayment by remitting funds to an account designated by GTAT as follows (the “Milestone Payments”):

· $[***] within [***] Business Days after execution of all of the Transaction Documents;
· $[***] by close of business on [***];

[***] Portions of this exhibit have been redacted pursuant to a confidential treatment request. An unredacted version of this exhibit has been filed separately with the Commission

· $[***] by close of business on [***];
· $[***] by close of business on [***].

(b) The Prepayment proceeds shall be used exclusively to [***].

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

by Matt Margolis

A memorandum dated March 27, 2014 from Merrimack’s Community Development Director, Timothy J Thompson addressed to Robert Best, Chairman of the Merrimack Planning Board provides details of GTAT’s imminent expansion and renovation plans at their Merrimack facility.  The memorandum seeks acceptance and consideration of Final Approval of an application for site plan review to construct a 46,000 square foot building expansion as well as renovate the existing 117,532 facility located at 243 and 247 Daniel Webster Highway.  The plans were reviewed by Merrimack’s planning board on April 1, 2014 and were unanimously approved 7-0-0, officially granting GTAT approval to construct a 46,000 square foot building expansion and 117,532 square foot renovation of the existing facility.  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.”  Key takeaways from the memorandum are below:

  • 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
  • Expansion will add 46,000 new square feet on top of 117,352 square feet of existing space

According to GTAT’s website the current Merrimack facility houses GT’s ASF furnace and LED business along with R&D and pilot production functions for a number of new technologies and other advanced materials.

Our ASF furnace and LED business is located in Merrimack. Our Merrimack facility is also the location of our  research and development and pilot production functions for a number of new technologies including Silicon Carbide and other advanced materials.

Details of the expansion and renovation memorandum of GT’s Merrimack facility are below:

Link to the memorandum dated March 27, 2014 and Merrimack Planning board’s approval of the expansion and renovation plans dated April 1, 2014.

Below are some key excerpts from the memorandum in text and image form.

GTAT has grown considerably from their start in Merrimack, and the recent contacts with global manufacturing partners are driving the need to grow their current facility to reflect the change to their operations from R&D focus to a more manufacturing focus.

GTAT is now seeking to expand the facility further by adding a 46,000 square foot addition.   The new addition will house primarily administrative office and administrative functions of the company, while the existing facility will be renovated  to support the company’s manufacturing processes rather than the research and testing operation currently in use.  In doing so, the company would be making a significant investment in replacing their outdated and obsolete equipment and installing additional equipment to support their manufacturing use.

GTAT is exploring several options on how to handle this shift, and among their current considerations is to expand on their facility here in Merrimack (other options are also being considered by the company).  The project has a very aggressive time schedule to meet the demands of the company, and the application before you has been prepared within the last several weeks, whereas a similar type of application would typically take months for the design engineer to prepare a submission for site plan approval

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

 

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

 

 

The latest rumor circulating out of Taiwan via Commercial Times is that Apple’s slim designed battery requirements are not being met and the 5.5″ iPhone 6 release may be pushed into 2015. It was previously reported that there was difficulty producing the 5.5″ touch panel displays and that the displays would like be delayed a few months.

At this point I’m chalking this up as another rumor that may or may not be accurate. At one point various speculation was made that the 5.5″ handset would be released first and now rumors are pushing the release into 2015. I would have expected Apple to clear the battery thickness requirement during early beta testing and product design requirements. Stay tuned on this one as this story may update again.