Obscure Breakdown of GT’s Strategic Hyperion Initiatives

Posted: May 1, 2014 by mattmargolis24 in Hyperion
Tags: , , , , , , , , ,

by Matt Margolis

If you paid close attention a week ago to my Merrimack plant expansion and renovation news, you would be in my camp that we knew some sort of deal was coming.  I fully expect the expansion in Merrimack will be outfitting the manufacturing operations announced in today’s press release.  For full disclosure, I was kind enough to share Merrimack expansion news with a NH Business Review and they followed up with GTAT, asked some questions and put out a report.  Additionally, I took my efforts to Seeking Alpha to further expand the reach of the news.  I don’t believe GT was expecting someone to report on its planned and approved expansion before GT had a chance to “formally” announce its plans to the public.  Investors should be expecting GT’s management to touch upon both topics (Merrimack and today’s announcement) next week during the Q1 2014 conference call.

The biggest question I think everyone has is what is the size of the announcement and when will revenue hit?  GT’s CEO has already informed investors that he doesn’t build a mouse trap and wait for the mice.  Instead he works with the customers and gives them what they want.  GT put together a comprehensive expansion plan in just a few weeks for their Merrimack location.  GT was granted approval on April 1st and they want this project completed in 6 months or less. Reading between the lines and thinking outside the box (still haven’t found the box) I believe we could see some contribution of revenue in Q4 of 2014 in the neighborhood of $25 to $75m.  The key to sizing up today’s news is understanding the target markets along with the new products and adoption of those products that will occur.  If GT can sell the entire package of furnaces, Hyperion and bonding equipment to each interested party the value of today’s press release may add $500m or more in revenue to GT’s top line as soon as 2015.  GT would not shutter all or some of their R&D operations unless their was a significant slice of pie to be had.  I am very curious for an update on GT’s expected Hyperion market adoption rate.   GT is now selling a complete solution (growth, exfoliate and bond) versus just the selling the furnaces to grow materials.

According to Hyperion Lamina Production Technology press release:

The company has entered into a memorandum of understanding (“MOU”) with European-based EV Group (“EVG”), a global leader in specialty bonding and material handling equipment, to work together in various collaborative arrangements including jointly developing high volume production processes and equipment necessary to bond the ultra-thin sapphire and SiC lamina, produced by GT’s Hyperion™ technology, to engineered substrates such as glass, silicon, and plastics.

GT’s business model will be focused on selling the bonding and coating equipment developed through these initiatives.

“Our sapphire composite material development program is focused on leveraging the combined expertise of GT and our technology partners in order to build a new market for low-cost and highly-durable substrate solutions for next generation consumer and industrial products,” said Tom Gutierrez, GT’s president and CEO. “These programs enhance our technology portfolio and leverage our significant investment in our Hyperion technology.”

The announcement today regarding GT’s strategic initiatives surrounding Hyperion Lamina Production Technology was partially on my radar.  From reading previous conference call transcripts (see GT’s management comments at bottom) I knew GT was working on composite glass, however I had no idea they would enter the bonding market.  GT’s entry into the bonding market makes complete sense, if you think about how GT focuses on the entire product life cycle, from birth to end product.  GT’s announcement today allows them to own three significant processes within this entirely new product life cycle; material growth, exfoliating material in lamina and bonding the lamina onto various substrates (surfaces) including glass, plastics and silicon.  GT may produce composite material or sell equipment to produce composite glass, however this one item it still very unclear based on the press release.

#1 Selling Material Growth Equipment – GT can sell their SiC furnaces to produce Silicon Carbide and they can sell ASF furnaces to produce sapphire (under the exclusivity of the Apple deal consumer electronics is NOT an available marketplace)

#2 Selling Exfoliating Material Equipment – GT can sell Hyperion to exfoliate SiC and Sapphire into 25-50 micron thick lamina

#3 Selling Bonding Lamina Equipment – GT can sell equipment that will bond the lamina to various substrates (glass, plastics, silicon)

#4 Selling Composite Glass Equipment or Producing Composite Glass? – This one seems a little ambiguous but it looks like GT is partnering with a glass substrate maker to produce composite glass.  My open question is whether GT will produce or sell the equipment that will produce this new material.

GT’s announcement today and focus is broken into 3 product segments, Sapphire and Sic on glass, plastics and silicon.  Sapphire laminate on composite glass and Aluminum Oxide Coating.

Sapphire and SiC on glass, plastics and silicon

The company has entered into a memorandum of understanding (“MOU”) with European-based EV Group (“EVG”), a global leader in specialty bonding and material handling equipment, to work together in various collaborative arrangements including jointly developing high volume production processes and equipment necessary to bond the ultra-thin sapphire and SiC lamina, produced by GT’s Hyperion™ technology, to engineered substrates such as glass, silicon, and plastics.

Sapphire laminate on composite glass

GT announced it will begin working with a leading glass substrate producer to develop specially engineered substrate materials that can be bonded to ultra-thin sapphire lamina to create unique composite solutions that expand the reach of sapphire into a broader set of applications.

Aluminum Oxide Coating (Sapphire in a coating form) (Al2O3)

The company also announced that it has acquired patent-pending technology for producing low-cost, scratch-resistant aluminum oxide coatings for various substrates including glass and plastics. These coatings are expected to provide some of the durability and scratch-resistant properties of crystalline sapphire at a lower price point to address market opportunities where cost is paramount and not all of the properties of sapphire are required.

 

Below are some comments made by GT regarding their Sapphire business beyond Apple and LED over the last year (Comments via Seeking Alpha)

Q1 2013

In addition, we believe that, over time, our Hyperion solution, currently in the R&D phase, could enable further cost reductions that could bring sapphire solutions to cost parity with strengthened glass, further broadening the array of applications and actually increasing the demand for sapphire. Our early progress gives us added confidence that Hyperion will achieve these milestones.

Q2 2013

Well, I think there’s no gigantic bump in R&D for us to complete development of the project. I mean, we’ve moved around and prioritized our R&D spending accordingly. Hyperion is not a first-generation product. Hyperion is a follow-on second- and potentially third-generation product. And it won’t be the same as pure sapphire. There’s pure sapphire and then there will be these composite structures that will come out. And so we think it’s significant, but we don’t believe it will have an impact on first-generation adoption. It’s more of how does the — how do these applications unfold later. And Hyperion is — it is a tool that can be used with sapphire. But we’re just as excited, if not more excited about the applications of silicon carbide and silicon and other monocrystalline materials where, for example, silicon carbide wafer today and epi-ready wafer cost $800 to $900. We believe that we could substantially change that equation if we’re successful with silicon carbide lamina. So very exciting opportunities outside of sapphire, again, but not a short-term implication to it in the market.

Q3 2013

In support of the new materials business, we have accelerated the development of our next-generation launch capacity, low-cost ASF furnaces. Not only will these efforts support our initiative with Apple, we expect that it will enable the expansion of our LED, industrial and specialty sapphire businesses, positioning GT and its equipment customers as the industry’s lowest-cost sapphire producers. We’re very excited about the opportunities that lie ahead for our sapphire business.

Q4 2014

As strong as our sapphire opportunities maybe, the GT story is not just about our emerging sapphire business. In fact, our entry into the sapphire materials business may enable us to expand into other material segments whilst (sp?) we have fully ramped the operation in Arizona.

 

Full Disclosure: I am long GTAT and plan on using the money generated from this blog to buy additional shares of GTAT!

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Comments
  1. Steve says:

    Any idea who the “leading glass substrate supplier” is? I haven’t seen hints anywhere.

    Like

  2. kinku says:

    Hello Matt,

    Can we expect any positive upside in Q1 earnings?

    Like

  3. […] Obscure Breakdown of GT’s Strategic Hyperion Initiatives […]

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  4. […] over a week ago GT Advanced Technologies announced several new initiatives to expand its portfolio of SiC (Silicon Carbide) and Sapphire solutions for […]

    Like

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