Obscure Analyst Grades his GTAT Q4 2013 Top 10 CC Watch List

Posted: May 2, 2014 by mattmargolis24 in GTAT Investor Information
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by Matt Margolis

I can’t believe it’s already time for GTAT to report its quarterly results for Q1 2014.  I decided to look back at my Top 10 predictions I made nearly 3 months ago ahead of GT’s Q4 2013 earnings report.   Let’s see how my predictions stacked up!

 

#1 Updated 2014 revenue guidance and initial EPS guidance –  GT confirmed the $600-800m range on January 16, 2014 after Richard Gaynor (former CFO) announced his resignation.  From my own experience having an additional month of knowledge can change estimates significantly.  With that said, given Apple’s “cone of silence”  I do not expect GT’s management to up the 2014 revenue forecast unless they landed a sizable new contract outside of Apple that will hit in 2014 or a significant order will be recognized as revenue from their current backlog.  Assuming revenue guidance for 2014 will not be updated,  I’m expecting GT to guide 2014 earnings at a profit of $0.12 to $0.38 per share.  For comparison the Yahoo Finance Analyst average estimate for 2014 is $0.09 per share profit.  If management ups guidance above $800m, you can tack on $0.13 EPS per $100m of revenue to the top and bottom range of my estimate for 2014.

Update 5/2/14: GT guided 2014 revenue at $600-800m versus my expectation of $600-800m.  GT guided 2014 EPS at $0.02 to $0.18  versus my range of $0.12 to $0.38.  

#2 Apple Sapphire Contract –  GT should give investors a general update regarding the tracking of the project against contractual terms.  It is highly unlikely that management will give any information related to project dates or reference sapphire cover displays.  I’m going to keep a close eye to see if GT reports or is asked about their current employee headcount, which is expected to grow substantially in Mesa, AZ.

Update 5/2/14: GT confirmed Mesa sapphire plant is on track.  GT confirmed they will be over 1,000 employees by midyear with growth occurring in the US.  GT’s headcount as of 12/31/13 was 541.  Distribution of employees by location is below:

Update 5/3/14

As of December 31, 2013, 185 employees were located at our Merrimack and Nashua, New Hampshire facilities, 76 employees were located at our Salem, Massachusetts facility, 19 employees were located at our Danvers, Massachusetts facility, 43 employees were located at our Missoula, Montana facility, 11 employees were located at our San Jose, California facility, 35 employees were located in our Mesa, Arizona facility, 60 employees were located in our Santa Rosa, California facility, 33 employees were locatedat our Hong Kong facility, 9 employees were located at our Taiwan facility, and 70 employees were located at our Shanghai facility.

 

#3 Q1 2014 EPS and Revenue Guidance –  I expect the company to guide Q1 revenue at $60m and a loss of $0.15 per share.  For the comparison the Yahoo Finance Analyst revenue range is $55m to $175m for Q1 with an average estimated loss of $0.08 per share.  I personally don’t expect any meaningful sapphire revenue from Apple to hit the books until late Q2 at the earliest unless Apple surprises everyone with a iphone June release.

Update 5/2/14: GT guided Q1 2014 revenue of $20-30m  and guided Q1 EPS loss of $0.20 to $0.25 versus my expectation of $60m and a loss of $0.15.

 

#4 LED –  GT should give an update on the availability of their ASF capacity, industry utilization rates as well as pricing trends.  Last quarter GT reported that ASF capacity would be limited in the near term due GT’s dedication of a vast majority of their current ASF capacity to support Apple.  Sapphire equipment utilization rates were high and that  sapphire pricing showed improvement driven by LED and mobile lenses and other mobile device applications.

Update 5/2/14: GT indicated that they are seeing improved pricing in the end market and that its ASF customers continue to operate at a high utilization rate

#5 Polysilicon – Last quarter GT stated that their pipeline in the Middle East continues to develop while prices and demand are coming into balance.  GT should give an update on OCI, who appears ready to begin the next build out of their plant by 2H 2014.

Update 5/2/14: GT  continued to be bullish on its long-term opportunities in the Middle east and indicated that Polysilicon prices appear to have bottomed out.  On 3/11/14 GT announced a $336m Polysilicon contract with Cosmos in Malaysia.

#6 Hyperion – Based on the last conference call (see comments below) it appears GT is close to landing a few deals related to the Hyperion.  GT appears to be near a deal related to solar cells with an Asian manufacturer as well as a new deal related to composite glass and thin sapphire structures for consumer applications.

Update 5/2/14:  On 4/29/14 GT announced various Hyperion initiatives  including a producing composite glass versus my expectation that a “deal” was near as of 2/24/14.  Chalk one up for the Obscure Analyst!

#7 HVPE – Last quarter GT was expecting to commercialize their HVPE for LED by the of 2014 (see below).  Just last week GT announced they had acquired exclusive rights to Kyma Technologies’ PVDNC technology, which will be compliment with GT’s HVPE system.  GT should be giving investors more information regarding the commercial availability and revenue expectations for HVPE.

Update 5/2/14: GT provided update during its March Technology conference.  This opportunity may contribute up to $100m a year by 2016.

#8 2014 Expenses – Keep an eye on overall operating expense including expenses related to the support of new technology development ($16m was set aside in 2013 for new technology including Hyperion, Silicon Carbide and HVPE Gan systems).  Capital expenditures for 2014 will also be closely scrutinized, it’s clear there has been some heavy lifting of capital equipment inside Mesa, but how much if any of it will be funded by GT?  Also, it will be interesting to see if the R&D forecast for 2014 will slow down from Q4 spending.  A slow down may shed some light on how far along GT is with the advancement of their ASF platform, which directly impacts the sapphire yield for Apple and pace of expansion of sapphire for LED, industrial and specialty sapphire businesses.  Management guided Op Ex at $54 million to $59m in Q4 which included $27 million to $32m of R&D expenses to focus on accelerating the development of their ASF platform.  (Final 2013 Op Ex guidance is below)

Update 5/2/14: No mention of GT’s R&D Spend in 2014  GT guided Capital spend at $500

#9 A “BIG” sapphire acquisition before the earnings call – I do expect GT to acquire another large player to expand sapphire for LED, industrial and specialty sapphire businesses.  I believe the fund-raising completed in December will be used to acquire a significant player related to sapphire equipment or materials, the only question that remains is how soon?

Update 5/2/14: No acquisition

#10  A “BIG” contract announcement before the earnings call –  The other type of “BIG” announcement we could hear before the earnings call tomorrow is a large contract.  GT’s CEO told investors last May, that GT will be moving “more and more towards a book-and-ship model,” my interpretation of this comment is GT is working towards less dependency on equipment business and managing backlog to a business model that leans heavily towards reoccurring revenue streams, similar to the sapphire materials contract GT signed with Apple in November.  It is also clear from the Apple deal that GT can run the equipment they sell like nobody else since Apple is handing the keys over to run and design the sapphire plant in Mesa, AZ.  The business model shift towards more materials business and less equipment dependency would also support GT’s focus on diversification.  Diversification could be defined as a shift between different lines of business or a shift of revenue sources within a line of business.   My complete list of potential near-term “BIG” deals is below complete with management’s comments,

Expanding Sapphire (1)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”.

Update 5/2/14:  On 4/29/14 GT announced various Hyperion initiatives  including bonding of sapphire on glass, silicon and plastics.  Sapphire laminate on composite glass and sapphire coating.  Chalk one up for the Obscure Analyst!

Hyperion Solar Cells (1) “We have made significant progress producing ultrathin silicon wafers with this technology, and are working to develop applications for the solar industry with a well-known solar cell manufacturer in Asia.”

Hyperion Consumer Applications (1) “We have also made similar progress developing low-cost composite glass and thin sapphire structures that we believe will have broad use in consumer applications”.

On 4/29/14 GT announced various Hyperion initiatives  including a producing composite glass.  Chalk one up for the Obscure Analyst!

Polysilicon in the Middle East (1) “With respect to our polysilicon business, we continue to be optimistic about our long-term opportunities as our pipeline in the Middle East continues to develop, supply and demand are coming into balance and pricing appears to have bottomed out, with an expectation that it will begin to rise over the next 6 to 9 months”. 

Update 5/2/14:  On 3/11/14 GT announced a $336m Middle East Polysilicon contract with Cosmos in Malaysia.  Chalk one up for the Obscure Analyst!

HiCz N-type Silicon Wafers for PV (1) “We also continue to advance the technical development of our HiCz n-type material solution. We recently demonstrated HiCz’s unique capability to grow high-quality, 10-meter long ingots, which is 3x to 4X the length that can be grown in a typical batch Czrochralski process. We will continue to optimize tool performance in preparation for bringing HiCz to market late in the second half of 2014. We believe that early traction for this product will come from outside of China”.

Silicon Carbide High Frequency High Power Devices  (1) “We’re currently seeking strategic partners to support our silicon carbide development. Given the high cost of silicon carbide wafers, the real opportunity for silicon carbide remains in pairing it with Hyperion, which should enable thin wafer cost structures that are nearly an order of magnitude below today’s state-of-the-art wafering processes. Such an advance would significantly expand this opportunity for GT”.

Update 5/2/14:  On 4/29/14 GT announced various Hyperion initiatives  including bonding of SiC (Silicon Carbide) on glass, silicon and plastics.  Chalk one up for the Obscure Analyst!

Update 5/2/14:  On 4/7/14 GT announced a $58.6m order for specialty furnaces, which will likely be used to form Silicon Carbide products.  Chalk one up for the Obscure Analyst!

Conclusion

The events that transpired over the last 3 months since the Q4 2013 conference call fell largely in line with what I was expecting, including my list of potential “BIG” near term that materialized.  I am working on my calibrating my expectations for the next 3 months and sharing it with all of you prior to next week’s earnings announcement and conference call.  I know the ride has been bumpy over the last several weeks for GTAT longs but I assure you, we haven’t seen nothing yet!  Buckle up, grab a helmet and get prepared for the ride of your life on the GT Choo Choo chain. 

 

I am long GTAT and will be buying more shares with the monthly proceeds generated from the Obscure Analyst blog for the foreseeable future.

 

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Comments
  1. Huddy says:

    Looking forward to your predictions next week

    Like

  2. Scott Mantz says:

    Enjoy your commentary, and appreciate your work, Matt

    Like

  3. jcd_la says:

    Hi Matt,

    What do you know about the 11 employees GT has working in San Jose? Do you think they are the group “battle testing” Merlin in the Bay Area?

    Best,

    JCD_LA

    Like

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