GTAT Update: Latest Supply Chain Check

Posted: June 11, 2014 by mattmargolis24 in GTAT Investor Information
Tags: , , , ,
  • Installed furnaces inside Mesa, AZ are estimated to exceed 2,500 tools
  • Apple Base Case Revenue likely to exceed $2B and $2.00 EPS
  • Sapphire boule size are estimated to approach 235 kg

GTAT is still waiting on the 4th and final prepayment is received from Apple. The delay in the receipt of the final prepayment is believed to be related to the ramp up of equipment of equipment inside the Mesa facility. The sapphire plant is expected to be completed in June, which should coincide with the receipt of the final prepayment from Apple.
 
My latest supply chain check indicated that GT has likely installed slightly more than 2,500 furnaces. Sapphire boule size is expected to range between 200 and 235 kg. Stephen Chin of UBS has been one of the most vocal analyst’s covering GTAT issued a note on May 28th related to the progress of GT’s sapphire operations in Mesa, AZ.
 
The UBS research note issued on May 28th indicated that any installed furnaces greater than 1,500 or boule size greater than 165 kg would likely result in an upside to its 2015 estimates of $1.30. UBS stated, “we believe 2015 has more chance for upside if the furnaces are indeed larger sized and there are more than we estimated.” My supply chain check indicates that the number of installed furnaces will be significantly larger than 1,500 and sapphire boule sizes will also be significantly larger than 165 kg, which will lead to major upgrades across the board from Wall Street analysts in the near future.
 
As a result of my most recent supply chain check I believe that the Mesa sapphire operations will have an ample supply to cover the iWatch, the 4.7” iPhone and the 5.5” iPhone with full sapphire cover glass in 2014. Additionally, the maximum sapphire screen capacity of the Mesa facility is likely to exceed 200m annual units. My most recent supply chain check confirms that GT’s sapphire business with Apple is likely to approach or exceed $2B annually, or $2.00 earnings per share using an estimated ASP of $10 per unit.
 
Current Wall Street models are only pricing in Apple business at $1b annual or $1.00 earnings per share. My latest supply chain check indicates that Wall Street will likely need to DOUBLE revenue, EPS estimates and price targets once the iPhone 6 and iWatch are released later this year covered in sapphire glass.
 
I am maintaining my $87.50 price target as well as my 2015 estimate for GTAT EPS at $2.84 based on $3.177B in sales, including just over $2B of sales from Apple versus $1.335B and $1.30 EPS currently being estimated by UBS.

Get in early and enjoy my top investment picks.

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Comments
  1. Barry Fitzgerald says:

    For sure, once any major analyst like Goldman, or GTAT announcements confirm a significant upside, we should see a major boost….perhaps today’s action is a precursor for those who found out something early. To clarify, are the furnace estimates for 2014 or 2015? Those are really large boules…well beyond what they are publicly touting at GTAT which was 165kg and *capability* of larger.

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      • Tor K says:

        Hi Matt.

        Great analysis – I really appreciate your work. I spend some time in equity research myself, and I recognize how incredibly hard it must be covering GTAT! Both truly understanding the products / production, and being able to make good estimates is one hell of a challenge if you’re asking me.

        I do however have one significant concern: where do you get the ASP of USD 10 from? Is this an “analyst norm”, is it something we can conclude from conf calls / presentations (reading between the lines) or do you have this number from other sources? How would 2015 EPS look like if we for example assume an ASP of USD 7?

        Anyway, thanks again, and I’ll try to be better at pitching ideas to you, as well as asking (hopefully) challanging and relevant questions.

        Best regards,

        Tor

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      • $10 is Wall Street consensus on ASP.

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  2. Tor K says:

    Hello,

    I guess management would have given a hint to analysts if they were totally off target, and I also assume this easily can be cross-checked with the gross margins management have guided.

    Thanks again

    Tor

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  3. […] in Sapphire production and Sapphire furnaces, and a new report from Matt Margolis published on The Obsucre Analyst includes important information about Apple’s ability to use this wonderful  new material […]

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  4. […] to analyst Matt Margolis’ latest blog post on The Obscure Analyst, Apple’s Mesa, Ariz. sapphire plant may have “an ample supply to cover the iWatch, the 4.7-inch […]

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