Archive for the ‘Mesa Sapphire Plant’ Category

The city is Mesa is set to delegate the operational rights of the Mesa sapphire plant sub zone to GTAT on Monday. Up to this point the city of a Mesa has acted as the grantee of the Mesa sapphire sub zone operations under approval that was granted in March 2014. According to the FTZ, the grantee (city of Mesa) has maintained the greatest direct control over the sapphire plant zone operations. The grantee also directly bears responsibility and Customs liability for the Zone’s operation.

GT as soon as Monday June 2nd may take direct control over the sapphire plant zone operations as well as direct responsibility for FTZ Customs liability. On May 20th GT posted a new job titled “Foreign Trade Zone administrator” to “Provide FTZ and import/export compliance training for all personnel working within the zone and at certain other locations”.

GT’s November SEC filing indicated that the company expected to receive the final prepayment in April. Stephen Chin of UBS, in his recent report published earlier this week indicated that the delayed receipt of the final Apple prepayment might be due to significantly more furnaces being installed at the Mesa facility versus his original estimates.

We believe one of the reasons that GT has not received its 4th prepayment from Apple yet (originally estimated the 4th and final would be paid by end of last month) is that there could be around 2,000 furnaces being installed (about 30% more than we originally estimated)

The transfer of the sub zone operations from the grantee (city of Mesa) to GT Advanced Technology on Monday June 2nd might be the final hurdle required before Apple releases the final prepayment of $138 million to GT Advanced. The final prepayment from Apple could be received as early as next week. The Mesa plant is expected to be completed in June.

Next week is setting up to be a very interesting week for GT Advanced Technologies.

Apple’s WWDC begins on Monday June 2nd.

GT is expected to be granted operator status over the Mesa sapphire operations sub zone on June 2nd.

GT’s annual stockholder meeting is scheduled on June 4th.

The final prepayment of $138 million from Apple could be received by GT as soon as next week.

Selecting an Operator (FTZ Website)

For businesses to use the Zone, save money, and expand or keep their operations in the community, the Zone must be fully operational.

Upon a grant of authority, the Grantee must address the processes of administration and operation of the Zone.

Some Foreign-Trade Zone Grantees elect to operate their General Purpose Zone themselves. In doing so, the Grantee maintains the greatest direct control over Zone operations, yet also directly bears responsibility and Customs liability for the Zone’s operation.

Disclosure: I am long GTAT

 

Reminder: My PTT Research Forensics Newsletter that is scheduled to be published on Thursday June 5th at 3pm EST.

My Forensics Newsletter pricing is now available and a special 20% launch discount (for the first 48 hours) will be available when my Forensics Newsletter subscription goes on sale on Monday June 2nd at 12pm EST.

If you were wondering what my next pick will be. Here is my sneak peek summary:

My next pick is a company that is built on top of a strong foundation of intellectual property. My analysis of the company’s data and public comments indicate that a “major ramp” in future sales is just getting underway. The company’s C-suite is in the process of scaling up the business and preparing to manage a much larger and more complex company. The company has quietly created an integrated eco-system comprised of software and hardware that continues to extend its competitive edge over its largest competitors. The industry that the company primarily supports is in the early stages of what is expected to be an explosive and long-term growth cycle.

 

20140531-094218-34938109.jpg

Advertisements

Patently Apple reported this morning on Apple’s newest sapphire patent that was published earlier today. The patent notes the need to protect control mechanisms, including buttons, pushbuttons, slide and toggle switches from environment effects, which include temperature extremes, humidity, contamination (I’m guessing this one is accidental dropping into a toilet or other unsanitary places), physical and electrical contact scratching and impact.

The main focus of the patent is to improve durability and reliability of electronic devices. The patent also defines the ”electronic devices” that may deploy sapphire cover materials including; portable phones, digital assistants, personal computers, computer displays, media players and other portable (like the iWatch) and stationary electronic devices. Other devices that are also named in the patent include; mobile telephones with media player capabilities, game players, remote global positioning and telecommunication devices, laptops, desktops, notebooks, hand-held and ultraportable computer devices.

The patent also indicates that sapphire could be used on the front, back or within the interior housing of the device.

20140522-130429-47069974.jpg

20140522-130429-47069827.jpg

20140522-130429-47069437.jpg

20140522-130430-47070274.jpg

20140522-130430-47070125.jpg

20140522-130429-47069629.jpg

Full disclosure: I am long GTAT

by Matt Margolis

I’ve been reading the feedback I received from several of my loyal followers as well as the various message board comments regarding sapphire cover screens, Apple’s iPhone 6 release date,  and Apple’s WWDC that is set to kickoff on June 2nd.  Listed below some of the questions I have recently received.

  • When will Apple launch the iPhone 6?
  • Will the iPhone 6 include a sapphire cover screen?
  • Will a sapphire cover screen only show up on the high-end 5.5″  iPhone 6?
  • Will sapphire be used on the iWatch?

I believe the answers to all of these questions are very important but the way all of GTAT’s shareholders are going to make some serious money is going to come down to analyst analytics.  I’m sure you are wondering what am I saying?  Well to be honest there are a handful of key data drivers that can turn Wall Street’s base case Apple annual revenue from $1 billion annually to of $2 billion in 2015 for JUST APPLE!  Just for the record, the Obscure Analyst is estimating GT’s revenue  from Apple at $2.2 billion for 2015.

The immediate impact on GTAT’s share price and Wall Street estimates once Apple announces sapphire cover screens on the iPhone 6 comes down to analyst analytics.

I’ve taken the last few days to digest some information to help everyone understand what the next impact will be to GTAT’s share price and valuation.  Goldman Sachs indicated they anticipate Apple to sell 203 million iPhone units in 2015, which under Goldman’s bull case would lead to $2b and $2.00 EPS for GTAT in 2015.

It is also important to note that even though bloggers and various naysayers indicate that the iWatch will carry sapphire cover screens first, there is $0 of revenue for the iWatch assumed in any of the Wall Street estimates (for those who gave detail). I repeat there is $0 of revenue built into analyst forecast’s for sapphire iWatch cover screens for 2014, 2015 and 2016.  The reason why Wall Street has $0 of revenue forecasted for the iWatch is directly related to the estimated full capacity of the Mesa, AZ sapphire plant.

 

Mesa, AZ Sapphire Plant Capacity: Goldman Sachs, Dougherty & Company & The Obscure Analyst

I would first off like to tip my cap off to Dougherty & Company for producing one of the best Wall Street research reports I have seen on GTAT.  My very high-grade has nothing to do with the $29 PT the company gave GTAT, but the breadth of understanding Dougherty demonstrated through its analysis of GT’s business.

The key data points that determine the Mesa, AZ sapphire plant capacity in terms of millions of sapphire cover screens are listed below:

    • Boule Size
    • Number of ASF Growth Furnaces
    • Days to Grow a Boule
    • Useable Boule %
    • Kerf Loss %
    • Yield Loss %
    • Cover Screen Height
    • Cover Screen Length
    • Cover Screen Thickness
    • Boule Form (Round versus Rectangle)

I’ve taken the base case from each analyst (Goldman, Dougherty and Obscure) and put them side by side.  I’ve also modified some of the key data points and ran three different scenarios so everyone can see how much the capacity calculations can swing.

Base Case Key Differences:

  • Screen Thickness: Goldman is modeling 1mm, Dougherty has the thinnest screen thickness model at only 0.55mm thick and Obscure is modeling 0.65mm.
  • Boule Size: Goldman is modeling 200 kg, Dougherty 100 kg and Obscure 230 kg
  • Form & Useable %: Goldman and Obscure are rectangular and 100% and Dougherty is round and 80%
  • Average Screen Size: Goldman 13 square inches, Dougherty 11.27 square inches and Obscure 10.69 square inches

Base Case

Maximum Capacity (Goldman 120m, Dougherty 89m and Obscure 310m)

Capacity Base case

Scenario #1 (Align Boule size and Relative Screen Thickness)

Maximum Capacity (Goldman 185m, Dougherty 223m and Obscure 270m)

Capacity Base scenario 1

Scenario #2 (Align Boule size, Relative Screen thickness and Form)

Maximum Capacity (Goldman 185m, Dougherty 223m and Obscure 270m)

Capacity Base scenario 2

Scenario #3 (Max Boule size, Relative Screen Thickness and Form)

Maximum Capacity (Goldman 212m, Dougherty 256m and Obscure 310m)

Capacity Base scenario 3

 

Conclusion:

GTAT’s CEO informed investors during the conference call that Apple would be fully utilizing the sapphire being produced by GTAT.  Currently Goldman Sachs and Dougherty Group are estimating that GTAT will sell nearly 100% of its annual sapphire capacity to Apple, but at a clip of only $1 billion per year or approximately $10 ASP based on 100 million units sold.   Goldman and Dougherty have $0 of revenue built-in for Apple’s iWatch.

There are several key data points that are used to calculate the capacity of the Mesa, AZ sapphire plant and there are drastic differences between Goldman Sachs and Dougherty Group capacity models.  Goldman Sachs’s boule size is twice the size of the boule used by Dougherty, but when it comes to sapphire screen thickness estimations Goldman’s estimated screen thickness was nearly twice as thick as Dougherty.

I ran three different estimation scenarios in an effort to modify the data outliers and to better align the peer group to come up with a better consensus of  the estimated sapphire capacity of the Mesa, AZ plant.  The boule size in Dougherty’s model (100 kg) is less than half of what should be used (200 kg+).  Additionally, the sapphire cover thickness estimated by Goldman Sachs is likely over estimated by 40% or more.  The form factor (round) used by Dougherty should be replaced by a rectangular boule form, which would lead an increase in the useable sapphire percentage in the company’s model.  The results of the scenario modeling (scenario #2)  indicate that the maximum annual capacity of the Mesa, AZ sapphire plant is likely between 185m and 270m sapphire screens or $1.85B billion and $2.7 billion of annual revenue assuming a $10 ASP.

I am currently estimating that the Mesa, AZ sapphire plant at full annually capacity can produce 310m of annual screens or $3.1B of annual revenue, however I am only estimating $2.2B of revenue or a 71% conversion rate in my 2015 estimates.  The major upside that has not been priced into GTAT’s share price is the fact that the Wall Street analysts have grossly under estimated the annual sapphire capacity of the Mesa, AZ plant.  The difference is worth $20+ of additional share value if Apple not only produces a sapphire cover screen for the iPhone 6 but also for the iWatch in 2014.  If Apple produces sapphire cover screens for both the iWatch and the iPhone it will result in annual Apple revenue, that will be closer to$2 billion versus the $1 billion estimated by the Wall Street analysts in 2015.   If GTAT generates $2 billion of annual revenue from Apple beginning in 2015 it will result in base EPS of $2.00+ for 2015, 2016 and beyond.

There is only one question remains unanswered.  Whose “analytics” hold more water, the Wall Street analysts or the Obscure Analyst?   The right decision may make you a lot of money!

 

I am long GTAT

 

 

 

 

 

 

 

by Matt Margolis

Last week GT Advanced confirmed the company’s guidance of $600-800m for 2014 and management could not provide a breakdown as to when or what way Apple could use sapphire.  GT did confirm on the conference call that all of the sapphire being produced will be utilized.  I’ve been asked by various investors and followers whether or not the iWatch alone is large enough to hit GT’s guidance of $600-800m of revenue in 2014.  My simple answer is no.  I’m estimating an ASP of $4 for each sapphire iWatch screen and even if Apple’s iWatch sales exceed 60m in 2014 it would only amount to $240m of revenue for GT.

The Apple/GT Mesa, AZ sapphire plant measures over 1.3 million square feet and I have read some reports that Apple would be dedicating this facility to produce sapphire home buttons and iWatch sapphire covers. GT announced recently that its 165 kg boule sapphire growth furnace was going to be commercially ready in Q3’14.  Additionally, GT also announced that they have sapphire growth furnaces that are producing “significantly” larger sapphire boules than 165 kg.  These larger ASF sapphire growth furnaces were being held captive for the company’s internal use but they are production ready and are likely in operation in Salem, MA and Mesa, AZ.

# iWatch Screens per ASF Furnace

There are a lot of factors that go into calculating the screen yield per ASF furnace and the difficult part is that the factual information is not readily available from the two parties involved.  What facts I do know can help everyone understand just how extraordinarily the  amount of sapphire that will produced inside the Mesa, AZ sapphire plant will be once it reaches full capacity.   I modeled out the iWatch at 1.5″ by 1.5″ which actually equates to a 2.25″ screen size which is significantly larger than sub 2″ screen estimates I have seen from various analysts. The sapphire screen thickness for my calculations is 0.60mm which is just 0.05mm  thicker than the current thinnest version of gorilla glass.  The boule size for my calculations was 200kg and 230kg, based on my conversations with a leading sapphire expert and commentary I’ve seen by GT regarding the company’s planned larger boule size.  Additionally, I’ve modeled out the days to grow a boule at 17 days and 22 days, currently GT specifications on the ASF115 are “18 days or less”.  I did reach out to GTAT for clarification on the specifications of the ASF165 and the company representative declined to comment.  Lastly, I’m estimating that 20% of the sapphire boule will be lost due to kerf loss and/or any other defects.

Based on my calculations, 1 ASF furnace can produce between 800,000 and 1.1 million, 2.25″ screens that are 0.6mm thick iWatch sapphire cover screens each year.  If Apple sells 60m iWatch units in 2014 it would require between 55 and 75 ASF growth furnaces running 12 months of the year to produce enough sapphire to cover 60m iWatches with sapphire.  Keep in mind that the Mesa, AZ sapphire plant is expected to house 1500 to 2000+ furnaces.  A fully ramped up Mesa, AZ sapphire plant would be able to cover 1.2 billion and 2.2 billion 2.25″ iWatches a year with 1500 to 2000 furnaces running year round  Additionally, if you believe that the Mesa sapphire plant is just for home buttons, you should realize that the plant would be able to produce at least 10 and 20 billion sapphire home buttons a year once at full capacity.

Conclusion

The Mesa, AZ sapphire plant owned by Apple and operated by GT Advanced Technologies will produce an extraordinary amount of sapphire.  I can assure you that home buttons and iWatch covers will not make a small dent in the amount of sapphire that will be produced annually within the 1.3 million square foot facility in Mesa, AZ.  GT recently commented during the company’s Q1 2014 conference call that Apple will utilize all of the sapphire being produced.  GTAT and Apple have not commented, confirmed or answered any questions directly related to the use of sapphire in Apple’s products, but a savvy investor would sit back and realize its going to take hundreds of millions of Apple devices sold annually to consume the extraordinary amount of sapphire that will be produced inside of Mesa, AZ.

 

GT’s CEO Tom Gutierrez, May 8th 2014 Q1 2014 Conference Call

I can tell you that we are producing sapphire, and that I expect that the sapphire we produce will be fully utilized.

 

 

 

 

by Matt Margolis

After the market closed today GT Advanced announced that the company would be making its next generation 165 kg, which is an upgrade from the 115kg furnace.  GT also announced the company has furnaces that can produce sapphire boules that are “significantly greater than 165kg and that the company intends to keep this more advanced ASF system captive for some extended period of time.  What is the big secret about the advanced ASF system and how big is it?

In my March 29, 2014 post that was focused on the iPhone 6 margin I indicated that GT was using a 200kg + furnace to grow sapphire inside the Mesa, AZ facility.

GT in 2012 was pricing in the cost of sapphire screens using the previous generation ASF furnaces (115 KG) as well as the previous generation diamond wire saw from Meyers Burger.  Additionally, the raw materials supply chain for Alumina had not been established.  If we fast forward to March 2014, GT is now using a (200 KG+) furnace which represents an improved yield of 74% from the ASF 115 KG Furnace.  GT will likely be using the next generation Meyer Burgers diamond wire cutting saws that will substantially reduce kerf loss and improve the fabrication costs to make a sapphire screen.

Some of you might be wondering how I would know the minimum size boule that would be produced by the “advanced ASF system”.  My source of information of the company’s ASF furnace plans is based on GT’s comments to LEDinside.com prior to announcing the Apple contract.  GT was responding to LEDinside’s questions regarding ASF demands driven by Non-LED applications.

GTAT predicts that sapphire substrate will be one of the growing markets in 2014. ASF currently produces 115 kg of the world’s sapphire. In regards to demand for LED and optical application, production capacity is already enough but sapphire substrate in non-LED applications including smartphone camera lens caps and home button covers, as well as the possible usage in smartphone displays by the end of 2014, demand for sapphire substrate is expected to rapidly increase. The company plans to increase sapphire furnace production to 200 kg. GTAT emphasized equipment purchased by clients can be directly upgraded, and thus reduce costs for clients as they do not need to purchase new equipments.

 

I pulled up a 2011 GT presentation on Sapphire and LED and I found it interesting that GT was growing 100kg and a 130kg sapphire boule in Salem, MA but was only selling ASF 115kg furnaces to customers.

Image

Conclusion

GT delivered a few messages that are resonating clearly withe me based on today’s announcement.

#1 GTAT is using ASF furnaces that are capable of producing 200 to 230kg boules inside the Mesa, AZ facility, which would represent a “significant” ~ 40% increase over the ASF 165.

2013 YE Report

Image

#2) GTAT has completed the ramp up of the Mesa, AZ facility based on the prepared comments made during the Q3FY13 earnings call.  GT indicated in November that backlogged ASF furnaces would be available once capacity opens up again.  This evening, GT announced that its ASF 165 furnaces will be commercially ready in Q3 2014 after previously announcing that ASF furnaces would not be ready until capacity opens up again.  The capacity limitations that GT is referring to are not related to the building of the ASF furnaces since those are done by third parties but instead the capacity limits are driven by the availability of GT’s service personnel staff.  GT’s service personnel “focus on final assembly, integration and testing of the ASF furnace at the customer site”.   It would be extremely difficult for GT’s service personnel to perform these tasks if Mesa was still being ramped up,

2013 Year End Report

Image

November 2013

Image

 

May 2014

Image

#3 This is not the first time that GT has been using larger ASF systems for their own use versus those sold in volume to customers.

#4 The 2014 “sapphire forecast” today’s announcement certainly muddies the waters and will make it even harder to figure out the sapphire mix between Apple and GT equipment.

#5 Today’s ASF furnace announcement just opened the door to GT to increase its 2014 revenue and EPS forecast due to sapphire and nobody will know if its driven by Apple material sales or ASF equipment sales.

 

Full Disclosure: I am long GTAT

 

 

by Matt Margolis

News broke Friday that Apple acquired Luxvue Technology Corporation for an undisclosed amount of money.  Luxvue  Technology was unknown to nearly everyone until their acquisition by Apple put them in the spot light.   I think the biggest question you want to know is, how can I make money from this?

According to Crunchbase Luxvue Technology was incorporated in 2009, based in Santa Clara, California and they develop low-power, micronLED based displays for consumer electronics applications.

LuxVue Technology Corporation develops low-power, microLED-based displays for consumer electronics applications. LuxVue Technology Corporation was formerly known as Papierlos Corporation. The company was incorporated in 2009 and is based in Santa Clara, California.

LuxVue Technology Corporation develops low-power, microLED-based displays for consumer electronics applications. LuxVue Technology Corporation was formerly known as Papierlos Corporation. The company was incorporated in 2009 and is based in Santa Clara, California. – See more at: http://www.crunchbase.com/organization/luxvue-technology#sthash.iBHexiMz.dpuf
LuxVue Technology Corporation develops low-power, microLED-based displays for consumer electronics applications. LuxVue Technology Corporation was formerly known as Papierlos Corporation. The company was incorporated in 2009 and is based in Santa Clara, California. – See more at: http://www.crunchbase.com/organization/luxvue-technology#sthash.iBHexiMz.dpuf

LED is very interesting topic, first of all LED is more efficient than fluorescent lights.  Second of all, LED is becoming the standard light bulb all around the world, one bulb at a time.  One of the most vital ingredients in LED lighting is sapphire. What makes sapphire so special?

Synthetic single-crystal sapphire is a single crystal form of corundum, Al2O3, also known as alpha-alumina, alumina, and single crystal Al2O3. Sapphire is aluminum oxide in the purest form with no porosity or grain boundaries, making it theoretically dense. The combination of favorable chemical, electrical, mechanical, optical, surface, thermal, and durability properties make sapphire a preferred material for high performance system and component designs.

One of the biggest issues with battery life are displays that drain your battery just from emitting light.  LED lights are known for their durability, low energy consumption and long-lasting life span.  What if an electronic device display shared was also composed of LED?  How much many hours would be added to your battery per charge?

Apple’s sapphire partner GT Advanced Technologies is currently producing sapphire for consumer electronics as well as the LED industry (LED customers currently exclude Apple).  GT is an expert in producing sapphire for LED as well as sapphire for consumer electronics.  The sapphire used for LED lighting does not need to be as perfect because it’s not the same as a sapphire cover screen that you look through to see your display.  The sapphire layer is the body (bottom) layer that the LED display would be stacked on.

Apple acquired LuxVue Technology along with its long list of patents.  One of the patents that sparked my interest was Luxvue’s (now Apple’s) LED Array patent.  What is interesting about this patent is that the bottom layer that makes up the LED display includes not only sapphire as an option but also SiC (Silicon Carbide).  According to the patent both materials can be transparent, but currently sapphire is drastically less expensive of the two options but SiC has a significant performance benefit over sapphire.   SiC most likely won’t reach consumer electronic products for several years (5?, 10?, 15? years) at the earliest, but the switch from Si (Silicon) to SiC (Silicon Carbide) is currently underway in Power Electronics.

Conclusion

  • In 2014 Apple is going to be the first high volume consumer electronics manufacturer to cover its devices with sapphire.
  • Apple is going to adopt LED displays within the next 12 to 18 months across its portfolio of iDevices
  • GT Advanced Technologies will produce and process hundreds of millions of sapphire substrates annually that will end up below Apple’s LED displays before the end of 2015.
  • Apple’s adoption of LED displays will add a “new significant layer” of reoccurring revenue to GT’s top line before the end of 2015
  • The relationship between GT Advanced Technologies and Apple goes much deeper than just sapphire cover screens

 

For your reading pleasure Luxvue’s (now Apple’s) LED Array patent is highlighted below.

A micro light emitting diode (LED) and a method of forming an array of micro LEDs for transfer to a receiving substrate are described. For example, the receiving substrate may be, but is not limited to, a display substrate, a lighting substrate, a substrate with functional devices such as transistors or integrated circuits (ICs), or a substrate with metal redistribution lines. In an embodiment, a micro LED structure includes a micro p-n diode, a reflective metallization stack below a bottom surface of the micro p-n diode, and an electrically insulating spacer spanning a portion of sidewalls of the reflective metallization stack and laterally surrounding the reflective metallization stack, where the reflective metallization stack is between the micro p-n diode and a bonding layer formed on a substrate. In an embodiment, the bonding layer has a liquidus temperature of approximately 350° C. or lower, and more specifically approximately 200° C. or lower. In an embodiment, the bonding layer is an alloy bonding layer. For example, the bonding layer may be an indium-silver (InAg) alloy. Depending upon the manner of formation, the bonding layer can have a uniform concentration, or a gradient concentration.

In a particular embodiment, growth substrate 101 is sapphire, and the p-n diode layer 110 is formed of GaN. Despite the fact that sapphire has a larger lattice constant and thermal expansion coefficient mismatch with respect to GaN, sapphire is reasonably low cost, widely available and its transparency is compatible with excimer laser-based lift-off (LLO) techniques. In another embodiment, another material such as SiC may be used as the growth substrate 101 for a GaN p-n diode layer 110. Like sapphire, SiC substrates may be transparent. Several growth techniques may be used for growth of p-n diode layer 110 such as metalorganic chemical vapor deposition (MOCVD). GaN, for example, can be grown by simultaneously introducing trimethylgallium (TMGa) and ammonia (NH3) precursors into a reaction chamber with the sapphire growth substrate 101 being heated to an elevated temperature such as 800° C. to 1,000° C. In the particular embodiment illustrated in FIG. 1A, p-n diode layer 110 may include a bulk GaN layer 112, an n-doped layer 114, a quantum well 116 and p-doped layer 118. The bulk GaN layer 112 may be n-doped due to silicon or oxygen contamination, or intentionally doped with a donor such as silicon. N-doped GaN layer 114 may likewise be doped with a donor such as silicon, while p-doped layer 118 may be doped with an acceptor such as magnesium. A variety of alternative p-n diode configurations may be utilized to form p-n diode layer 110. Likewise, a variety of single quantum well (SQW) or multiple quantum well (MQW) configurations may be utilized to form quantum well 116. In addition, various buffer layers may be included as appropriate. In one embodiment, the sapphire growth substrate 101 has a thickness of approximately 200 μm, bulk GaN layer 112 has a thickness of approximately 0.5 μm-5 μm, n-doped layer 114 has a thickness of approximately 0.1 μm-3 μm, quantum well layer 116 has a thickness less than approximately 0.3 μm and p-doped layer 118 has a thickness of approximately 0.1 μm-1 μm.

In the Figure below a layer of Sapphire and or SiC is represented by “101”

LED Display

 

Full Disclosure: I am long GTAT and Apple’s newest acquisition will result in a “new significant layer” of reoccurring sapphire revenue from Apple, which is likely to begin before the end of 2015.

 

 

By Matt Margolis

sapphire screen

Apple and GT Advanced Technologies signed their statement of work (SOW) on October 31st ,2013.   The agreement between the two companies does not identify what “sapphire materials” GT will be providing Apple, but I can assure you that the answer is sapphire cover screens.  The only question that remains open is how fast will Apple adopt sapphire cover screens across their portfolio of iDevices.  Apple has purchased, updated and retrofitted a 1.3 million square foot facility in Mesa, AZ for GT to occupy and grow sapphire boules.   Based on a recent report by UBS, GT is growing sapphire boules, coring the boules into a predefined ‘form factor” and shipping the sapphire cores to China to be processed into sapphire cover screens.

During the Q2 2012 conference call (see comments below) on August 2nd 2012,  GT  indicated that they were actively working with several customers and major end market players to qualify and certify sapphire produced from their ASF systems for use of sapphire in handheld mobile devices.  Just 3 weeks later GT signed a confidentially agreement and 14 months later the two companies agreed to a SOW for to produce sapphire materials in Mesa, AZ.  I expect Apple to introduce the iPhone 6 covered in sapphire between June and September, which approximately 2 to 2.5 years after GT indicated their sapphire for mobile devices was being qualified and certified.

One of the most promising opportunities in the consumer market is the broader adoption of Sapphire and handheld mobile devices. GT’s ASF grown Sapphire is particularly well suited for these applications, and we’re actively working with several of our customers and major end market players that have approached us to qualify and certify sapphire produced on our ASF systems as a more cost-effective, scratch-resistant and optically superior alternative to other materials currently in use.

We believe that GT is the only sapphire equipment company capable of quickly scaling to support the quick ramp of quality, cost and sizable volumes that the mobile device market could require as sapphire gains wider market adoption. (GTAT Q2 2012 Prepared Remarks)

I wanted to spend some time focusing on Apple and GTAT relationship in the past just to show how long it took to go from sample testing to market introduction for sapphire cover screens on a mobile device.  The infrastructure and equipment ramp up would have been much less if GT did not engage with Apple but in genera it takes a good 18 to 24 months to go from sampling product to market introduction on a mobile device.

Rubicon’s Acknowledgement that GT will be providing Sapphire Cover Screens to Apple

Rubicon is equipment maker and sapphire producer. Unlike GT, they do not sell their equipment and they are truly a one trick pony.  Rubicon is primarily a sapphire producer for the LED market but as indicated by its management they are growing selling small sapphire cores to its polishing partners.  Rubicon’s smaller diameter cores of sapphire that are being sold for mobile devices are related to  the production of sapphire lens covers, which have been adopted by several phone manufacturers since Apple led the way in 2012.

Rubicon made some very telling comments regarding the sapphire use in mobile devices, specifically the use of sapphire for cover screens during their Q1 2014 conference call (Courtesy of Seeking Alpha).

The use of sapphire in mobile devices is a relatively new application and has a normal potential for growth. Smartphone manufacturers are looking to incorporate sapphire on the exterior of their devices due to the strength and optical characteristics it provides.

Thus far, most of the demand for these applications had come from one manufacturer. However, we believe we will begin to see greater adoption of sapphire in mobile devices. We participate in this market, primarily by selling a significant amount of smaller diameter core to our polishing partners. We are also well positioned to sell larger diameter bulk crystal in a variety of shades and dimension into the market as additional applications develop.

We also believe that we are in the very early days of the use of sapphire in the exterior mobile devices for applications like camera lens covers and home buttons. Based on our knowledge of the marketplace with the exception of one competitor who is building out capacity for a specific customer, none of the existing sapphire producers are planning to add capacity in the current environment and some competition is now leaving the market.

First of all, I think it’s very interesting that Rubicon even tried to cryptically cover up (no pun intended) the sapphire cover screen build out, “one competitor,” who is building out capacity for a “specific customer”.  The translation is GTAT is building out capacity in Mesa, AZ to cover Apple’s devices with sapphire screens.  The other very interesting point is that, “none of the existing sapphire producers are planning to add capacity in the current environment and some competition is now leaving the market”.  This is the clearest indication yet that GT’s build out in Mesa is on track and there has not and will not be a “Mayday Mayday Mayday” call to another sapphire producer to step in and help GT will Apple’s needs anytime soon.   Spare sapphire industry capacity outside of Mesa, AZ is absorbing mobile sapphire growth as well as players leaving the competition all together.

Conclusion

At this point GTAT is on target to supply sapphire screens for Apple devices by the middle of 2014, starting with the iPhone 6 and iWatch and followed later by the refreshed iPod.  It is still too early for me to assess the likelihood that GTAT will supply sapphire cover screens for the iPad, iPad mini and the rumored 12.9″ over sized iPad.  I can tell you Apple’s plans for sapphire do not begin and end with the iPhone and the iWatch but they will extend in some fashion across all of Apple devices, current and future.  Furthermore, it is also clear to me that even Rubicon knows that GT will be supplying sapphire screens to Apple.  Additionally, Rubicon indicated that, “none of the existing sapphire producers are planning to add capacity,” which is a clear indication that Apple and GT have built a moat around sapphire cover screens for at least the next few years.

moat

 

Sapphire Cover Screens: As Apple and GTAT lead the charge others will follow! 

Apple led the way in 2012 with sapphire camera lens covers and the rest followed.  Apple led the way with a sapphire home button in 2013 for biometric scanning and the rest are slowly following.  Apple will lead the way with sapphire cover screens in 2014 and the rest follow, but it might will them a few years or even longer.

If you don’t believe the Obscure Analyst just take a look at what Rubicon said 3 months ago during their Q4 2013 conference call and last week during their Q1 2014 conference call.

 

Rubicon Q4 2013 Conference Call

Apple was the first company to adopt a sapphire camera lens cover and now other smartphone manufacturers are also including sapphire lens covers for their newer models. Apple’s latest iPhone model, the 5S incorporated a sapphire home button.

The switch to sapphire for their home button in the 5S was because sapphire is virtually scratch proof and offers improved touch capacitance, which are important characteristics to ensure the effectiveness of the fingerprint recognition security they have built into the phone. It is our expectation that other mobile device manufacturers will also add similar functionality soon.

Rubicon Q1 2014 Conference Call

The use of sapphire in mobile devices is a relatively new application and has a normal potential for growth. Smartphone manufacturers are looking to incorporate sapphire on the exterior of their devices due to the strength and optical characteristics it provides.

 

Full Disclosure: I am long GTAT and I can’t wait to pre-order my sapphire covered iPhone 6

by Matt Margolis

Analyst Stephen Chin from UBS, indicated in his April 29th report that his checks indicated that GTAT shipped out approximately 2,200kg of sapphire ingots to China to be processes into sapphire screens.  GT is currently recruiting for Inventory Control Analysts as evidenced by the company’s April 24, 2014 job posting on the company website.  Inventory control analysts typically monitor inventory (in this case sapphire) to ensure that levels of inventory are adequate as well as to monitor sale orders and overall production.  I spent some time in one of my previous “full-time” jobs, doing inventory audits and visiting various manufacturing locations.  It is very important to tag, monitor and count inventory levels.  Additionally, since GT is growing and accumulating massive amounts of sapphire inventory it is critical to understand expected deliveries as well as logistics.  Just like the UPS commercial, “What can brown do for you,? knowing your logistics is very important since Apple operates a just in time assembly process.  Apple’s just in time assembly process keeps carrying costs low and does not tie its precious cash by holding large amounts of inventory.

One interesting bullet point within the key duties and responsibilities section is the mention of “releasing and logging new part number releases”.  The key duties and responsibilities seem to indicate that GT will be producing multiple part numbers i.e. variations of cored sapphire inside the Mesa, AZ sapphire plant.  If GT is indeed coring ingots and shipping to China for processing this bullet point would likely indicate that GT is making sapphire for not just one Apple device but multiple Apple devices.  Any thoughts I have related to GT producing sapphire for multiple devices always forces me to revisit the 9 phases (sections) of the Mesa, AZ sapphire plant.  Is each phase in the Mesa sapphire facility dedicated to the production of sapphire for a specific Apple device?  What I can tell you is that Module 1 through Module 4 have been delivered to GT for possession based on my review of the issued permits and descriptions.

 

1.2.1       Phases. Landlord anticipates that it will deliver possession of the Premises to Tenant in multiple phases as each phase of the Premises (each, a “Phase”) becomes ready for delivery to Tenant.  As used in this Lease, the term “Current Demised Premises” shall mean, at any given time, the Premises or the Phase(s), and the portion of the Premises corresponding to such Phase(s), of which Tenant has accepted delivery in accordance with Section 1.4.  Exhibit C describes each of the nine (9) Phases of the Premises.  The Phases are designated on Exhibit C as “Phase 1”, “Phase 2”, “Phase 3”, “Phase 4”, “Phase 5”,”Phase 6”, “Phase A”, “Phase B” and “Phase C”.  Except as expressly set forth in Sections 1.2.2, 1.3 and 1.4, Landlord shall deliver each Phase of the Premises to Tenant in its then “as-is” condition without any representations or warranties regarding condition.

 

Inventory Control Analysts Key Duties and Responsibilities

  •  A dynamic individual that can interact with Engineering, Logistics, and Operations to ensure that the inventory counts and numbers are up-to-date and accurate to the best of their ability.
  • Maintain orders and inventory in SAP in a timely and efficient manner.
  • Maintain and distribute a real time order report.  Track inventory orders and report to management.
  • Modify as necessary.
  • Work with Operations Analyst to identify BOM changes and SAP part number changes that directly affect open and pending sales orders that directly affect inventory.
  • Work with Operations order team for releasing and logging new part number releases for engineering and operations in SAP.
  • May interact with Finance and Logistics to provide customer specific product information on Inventory related issues.

                         Inventory Control Analysts Required Skills

  • Excellent organizational skills and attention to detail. High level of accuracy is required.
  • Working knowledge of capital equipment production.  Strong familiarity with the sales order process in a production environment.  Clear understanding of part numbering systems, bills of materials, revision control, engineering interface and Logistics.
  • Competent user of SAP with strengths in order entry and sales order process.
  • Clear communicator that can address all management levels of the organization.
  • Strong computer skills capable of producing Excel spread sheets and reports that may be distributed widely.   Able to generate reports directly out of SAP.

· UBS checks indicate that GT shipped some small quantities of sapphire made in its Arizona fab to one of Apple’s partners in China who is in charge of making sapphire covers.

· Given the early success of starting shipments of small amounts of sapphire to China last month, UBS expects GT could raise its full year 2014 sales guidance to the upper end of its $600M-$800M range, with 80%+ still likely from sales of sapphire materials.

· UBS expects 4th and final prepayment will be made in May

· UBS is estimating 100 furnaces were turned on and running. They expect 400-500 sapphire furnaces to be turned on in 1Q14 and 900-1000 in 2Q14

· Sapphire cover screens margins expected to be around 25%

If you follow the Obscure Analyst, you would already know GT turned on 140 furnaces on January 10th, 2014 and UBS checks indicate that the “Quick Start 140” furnaces made their first delivery of sapphire ingot in to one of Apple’s partners in China who will make the sapphire covers. A sapphire ingot is a sapphire that is “cored” out of the boule that will need to be sliced into sapphire screens. UBS indicated that 2,200 kg of sapphire ingots were shipped to China for processing. I am estimating that approximately 100,000 to 115,000 sapphire screens could be produced from 2,200 kg of sapphire ingots. GT’s selling price per screen based on the information provided is falling into the range of $8.50 to $10 per screen.

I am slightly more optimistic than UBS as far as the sapphire furnace ramp up due to the fact that over 1,200 furnaces have been imported and delivered prior to the Mesa, AZ plant prior to March 3rd, 2014. Additionally, my 1,200 furnace count does not include any furnaces from GT that were taken out of equipment inventory in Q4 ($71m worth), or $180m worth of PP&E that was deployed in Q4 2013 (mostly in AZ). I believe that nearly all of the furnaces were ramped up by the end of March based on GT’s ability to ramp over 500 furnaces a month and given that fact that most of the furnaces were delivered between December and February.

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

by Matt Margolis

GT Advanced Technologies posted a SAP Functional Lead position on April 10th, 2014 to support its Mesa, AZ sapphire operations.  This position is heavy into SAP (financial system) with experience in materials, production planning, sales and distribution, financial transactions and monitoring operations.  This position also requires “experience with a company experiencing rapid growth”.

The key takeaway here is GT is preparing for a significant pickup in the shipment of sapphire materials and this role is critical to managing a financial transaction that begins with the flow of materials, finished goods, sales, billing and cash receipts.   Additionally, GT is expecting to experience rapid growth of its sapphire operations in AZ, which is a signal that Apple has big plans for GT and sapphire for the foreseeable future.

SAP Materials ManagementSAP MM module as the term suggests manages materials required, processed and produced in enterprises. Different types of procurement processes are managed with this system. Some of the popular sub-components in SAP MM module are vendor master data, consumption based planning, purchasing, inventory management, invoice verification and so on.

SAP Production PlanningSAP PP module is another important module that includes software designed specifically for production planning and management. This module also consists of master data, system configuration and transactions in order to accomplish plan procedure for production. SAP PP module collaborate with master data, sales and operations planning, distribution resource planning, material requirements planning, Kanban, product cost planning and so on while working towards production management in enterprises.

SAP Sales and DistributionSAP SD modules deal in managing all transactions ranging from inquiries, proposals, quotations and pricing and more. The sales and distribution module helps greatly in inventory control and management. SAP SD module consists of master data, system configuration and transactions.  Some of the sub-components of SAP SD module are: master data, sales support, sales, shipping and transportation, billing, credit management, sales information system and so on.

SAP Financial Accounting – SAP FI module deals in managing financial transactions within enterprises. This financial accounting module helps employees to manage data involved in any financial and business transactions in a unified system. This module functions very well for reporting requirements. The SAP FI module is very flexible and is functions well in any type of economic situation. Be it a smaller organization or a larger organization, SAP implementation helps in consolidating data for diverse business transactions and legal requirements. Financial Accounting module helps one to get real-time financial position of an enterprise in the market.

SAP ControllingSAP CO module is another important SAP modules offered to enterprises. The controlling module supports in the process works of planning, reporting and monitoring operations of businesses. It involves methods to view and organize costs that are required for financial reporting. Controlling module enables one to plan, track, perform and report about costs. Controlling includes managing and configuring master data that covers cost elements, cost centers, profit centers, internal orders, and functional area and so on.

SAP Quality Management – SAP QM module helps in management of quality in productions across processes in an organization. This quality management module helps an organization to accelerate their business by adopting a structured and functional way of managing quality in different processes. SAP QM module collaborates in procurement and sales, production, planning, inspection, notification, control, audit management and so on.

Position Summary

GT Advanced Technologies is seeking an experienced and highly motivated SAP Functional Lead with experience with Materials Management to work in the Information Group as a systems support and integrator for an SAP ECC 6.0 installation in our manufacturing operations.  The primary responsibility will to provide SAP Functional Support across the entire areas of our SAP installation with a focus on MM and PP but also SD and FI/CO to a lesser extent. This individual will work as a local liaison to a remote Information Technology team and third party implementation and functional support partner to facilitate the development and management of systems with respect to the SAP ERP/MRP environment.

Required Experience

  • Minimum of 5 years of progressive experience implementing and support SAP Materials Management module, including supply agreements, procurement, inventory management, and receiving in a complex manufacturing environment.  Experience with SAP Fi/Co, PP, QM and SD modules desirable. Experience interfacing SAP with a SAP MES system a plus.
  • Experience working with a Company experiencing rapid growth.
  • High level of integrity and dependability with a strong sense of urgency and results orientation.
  • Strong verbal and written communication, facilitation, and interpersonal skills.
  • Public Company and Sarbanes Oxley experience required.
  • Requires a bachelor’s degree in Computer Science or Business Administration
  • Travel 10% of the time, more as needed

Also, if you haven’t seen a GT job posting it is important to read GT’s core mission statements.  GT is driven by,  “elevating advanced materials and equipment performance to increase capacity, quality and throughput by lowering operating costs”  Additionally, “we have a successful track record of commercializing crystallization growth systems on a global scale to accelerate the ramp of our customers plants to volume production and have decades of experience as an advanced materials provider”.  It is clear that lowering costs, increasing throughput, accelerating plants to volume production and providing material is what GT is good at.

 

Expertise

Our expertise is in crystalline growth technology, process engineering and manufacturing operations. Our world-class team of scientists and engineers has deep-domain experience in elevating advanced materials and equipment performance to increase capacity, quality and throughput while lowering operating costs. We have a successful track record of commercializing crystallization growth systems on a global scale to accelerate the ramp of our customers’ plants to volume production and have decades of experience as an advanced materials supplier.

Excellence

From purchase to product lifecycle support, our operational excellence and service sophistication is unmatched. This means we can respond quickly and efficiently to customers so they can meet their business requirements with confidence and support them as their businesses grow.

 

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