Posts Tagged ‘gtat. sapphire’

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

 

 

 

 

 

 

 

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A photo taken today and shared with me an hour ago clearly indicates steam is coming out near the cooling systems by the electrical substation. Eye witness account indicated that the parking lot was very full overnight and a flock of employees arrived at 6am for work this morning. The eye witness also counted 21 sets of 3 phase electrical lines powering the facility.

This is the best evidence yet that the Mesa Sapphire facility is “full steam ahead” and is up and running and producing sapphire around the clock.

I had previously indicated that the Mesa sapphire plant was likely operating at or near full capacity by the end of March, just weeks after being granted approval to being full operations on 3/19/14 by the Federal Trade Zone (FTZ).

I will have additional images to share later.

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

by Matt Margolis

Based on my review of the Mesa sapphire plant building permits it seems likely the sapphire manufacturing plant is active within modules 1 through  module 4.  Tool platforms (platforms that hold ASF sapphire growth furnaces) have been installed within the first 4 modules and each of first 4 modules (areas) appear to have been equipped with fire alarms and FS/TS monitoring at each Tool platform.  I’m taking an educated guess that FS/TS is referencing flat screen (FS) and touch screen (TS) monitors on each Tool platforms, which would seem to make a lot of sense.  Module 1 and Module 2 are known to be 12,500 square feet, Module 3 square footage is unavailable and Module 4 measures 162,483 square feet, which is large enough to hold well over 1,500 ASF growth furnaces.

Mesa Module 4 Building Permit Image 162,483 square feet

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The most recent building permit issued on 4/17/14 indicates that a request to work on the “central utility plant” to work on heat exchangers, cooling towers and installation of additional fan coil units. The images below that were taken on 4/10/14 indicate the exterior construction on the cooling towers and electrical station appear complete.

The 4/17/14 building permit description indicates that Apple is requesting additional work inside the uninterruptible power systems (UPS) and battery rooms (yes plural).  For any of us who have not been inside a battery, this room within a manufacturing plant houses battery backup for uninterruptible power systems (UPS) and is critical to provide power if any outages were to occur. If Mesa loses power the UPS would kick in and deliver the necessary power to the ASF sapphire growth furnaces.   Also, an additional request was also made to add exhaust fans with spark proof motors and H2 sensors in the battery rooms.
Mesa Cooling Towers from 4/10/14

April 10 West Water Towers

Mesa Electrical Statio  from 4/10/14

April 10 West Electrical Station

Sample Battery Room image from bsn and is not directly related to the Mesa plant in any way!

battery room sample

Fan Coil Unit Sample image and is not directly related to the Mesa plant in any way!

Fan Coil Unit Example

 

ADDENDA TO PACKAGE A02K – DRB016. REF BLD2014-00440. WORK IN CENTRAL UTILITY PLANT INCLUDING HEAT EXCHANGERS, COOLING TOWERS, AND ASSOCIATED PIPING AND ELECTRICAL FOR ADDITIONAL FAN COIL UNITS, I AND C POINTS FOR THE CENTRAL PLANT AND NEW EXHAUST FANS FOR THE UPS AND BATTERY ROOMS. LIGHTING FOR N AND S E-HOUSE AND PUMP HOUSE ALSO INCLUDED.

 

ADDENDA TO PACKAGE A04E – DRB042. INCLUDES EXHAUST FANS WITH SPARK-PROOF MOTORS AND H2 SENSORS IN BATTERY ROOMS.

 

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Fabrication Area with Centrifuge Platforms

Another interesting item is the fact that the Mesa facility includes a fabrication area that has been outfitted with centrifuge platforms.  Centrifuges are usually used to separate liquids but other forms of centrifuges include analytical centrifuges, which can study just about anything including proteins and sediment.

ADDENDA TO BLD2013-05895, A04D DRB018, FABRICATION AREA BASE BUILD. INCLUDES CONSTRUCTION OF CENTRIFUGE PLATFORMS AND BUILD OUT OF FABRICATION OFFICE AND CONFERENCE, COPY, AND BREAK ROOMS.

 

Sample Centrifuge Image from (Huada) and is not directly related to the Mesa plant in any way!

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Product Recycle Room 4,752 square feet

The Mesa facility is equipped with a 4,752 square foot product recycle room.  A permit was issued on 3/4/14 to install a Pneu-Lectric double interlocked preaction system (these are fancy words for a very expensive integrated alarm/sprinkler system).  If you are bored you can read about an existing Pneu-Lectric model here.

REF BLD2014-00161 & BLD2014-00263. Double interlock pre-action system to cover 4752 s.f. approx PRODUCT RECYCLE ROOM within building.

 

 

 

 

I love when you get tomorrow’s news today.  A new report out of the South China Morning Pos is a 100% contradiction of the gforgames report that emerged early this afternoon with headlining that Apple’s next iphoine is highly unlikely to have a sapphire display due to skyrocketing costs.  The only similarity between the articles is that Angela Meng  does also mention that the cost is far more expensive than Gorilla Glass.  Angela seems very confident that the Iphone 6’s will arrive in September featuring a 4.7 inch and a 5.5 inch sapphire display .  I hope she is right.

App developers need to be poised for a redesign because Apple’s iPhone is getting bigger.

The tech giant will roll out the iPhone 6 in two sizes – 4.7 inch and 5.5 inch – in September, according to industry insiders who have seen the prototypes.

The new iPhone screen will be made entirely from scratch-resistant sapphire crystal glass, they said. Sapphire crystal, second to diamond as the hardest material, is now used by Apple for its iPhone camera lens cover and touch identification.

It will also sport a new display at 441 pixels per inch (ppi), the same as the Samsung Galaxy S4. The highest definition Apple now offers has only 326 ppi.

“They have to tackle the phablet [devices that serve as both phone and tablet] market. People want bigger screens now,” one insider said.

The iPhone 5S, Apple’s largest phone at 4 inches, is notably smaller than the S4, which measures 5 inches, and the Galaxy Note 3, with a 5.7 inch screen.

Last week, Apple repurchased US$14 billion worth of its stock after announcing disappointing first-quarter results.

The company originally said it intentionally kept the screens small to fit comfortably in a user’s hand. Since then, the iPhone 5C has suffered poor sales numbers, its competitors have more or less all upgraded to larger devices, and China, the world’s largest smartphone market, has been rapidly snatching up Samsung phones.

According to the two insiders, the 5C will be gone while the 5S will stay but be made from cheaper material.

Despite widely circulated rumours that the new phone will be curved, insiders say the iPhone 6 will have a flat screen.

“The screens will be flat. Apple doesn’t do anything until Samsung does it, and then they improve upon it,” another insider said.

The arrival of sapphire means a dramatic increase in the cost of making an iPhone, as sapphire is far more expensive than the present Gorilla Glass, but it remains unknown whether the price of a single iPhone will go up.

The design “freeze” for the iPhone 6 – after which no changes will be made – is set for April this year, they said.