Posts Tagged ‘gtat upgrade’

by Matt Margolis

 

Highpoint Engineering was brought in to begin planning the project approximately 2 weeks before the April 1, 2014 Merrimack Planning Board presentation.  It is likely, based on the dates above that GTAT was presented with a sapphire materials opportunity sometime in early March that will ultimately result in GT’s strategic decision to shift their R&D facility to a sapphire growth, product creation and shipping operations.

GT’s Merrimack construction plans include building construction and interior work that will displace the administrative services functions.  The expansion includes a 23,000 per floor additional that is 2 floors and measures 65 feet by 350 feet long.

GT’s exterior infrastructure improvements include installing up to 6 transformers and up to 1 to 2 cooling towers.  Currently the site has 1 inert “Argon” tank and the plan is to add 2 inert gas tanks, one consisting of Helium and one consisting of Nitrogen.  The additional inert gas tanks will measure approximately 8 to 10 feet in diameter by 15 to 18 feet in height.  The facility will include backup generators and UPS systems, since GT can ill afford a nanosecond of power disruption while growing sapphire boules.

The facility will accommodate 307 parking spaces up from 221 spaces currently at the location.  The number of parking spaces were noted as adequate because the operation will include “swing shift” employees (24/7) operations.  The internal shift from R&D to Manufacturing has already begun within the existing facility.  The lead engineer from Highpoint Engineering has indicated that there has been a significant uptick in truck traffic over the last few weeks (3/17 /14 to 4/1/14) to move equipment and prep the building for manufacturing.  The equipment operation is lessening and t he manufacturing process is increasing to grow boules, create a product and ship it out.  The facility is expected to have 2 loading docks for shipping and receiving.

Merrimack Site Plan Image (The expansion of plant is the yellow sliver)

Merrimack site plan 1

 

Merrimack site plan 2

Merrimack site plan 3

 

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

 

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by Matt Margolis

GTAT is expected to announce the date of their Q1 2014 earnings release and conference within the next week.  I’m expecting GT to announce their Q1 2014 results and host their earnings conference call on Monday May 5th.  The consensus estimates I’ve gathered from the analyst community is for GT to post Q1 sales of $31 million and a loss per share of $0.24.  My Q1 2014 estimate is aligned with the analyst community, I am projecting sales of  $28 million and a loss per share of $0.24.  I’m going to be laser focused on the capital spending that GT reports for Q1 2014 as well as to see if additional PP&E was deployed, most if not all this capital is related to the ramp up occurring in Mesa, AZ.  Another line item I am curious about is the headcount, as GT expected its global headcount to reach 1,000 employees by the middle of 2014, up from 541 employees as of 12/31/13.    Most of these new employees will be located in Mesa, AZ so the headcount will shed some light into the equipment ramp and overall status of the Mesa sapphire facility through March 2014.   I have shared information on several occasions that the Mesa sapphire plant went live with 140 tools (sapphire growth furnaces) on 1/10/14 and significantly increased the number of active tools by the middle of February as evidenced by their building permit request to make changes to the MV (medium voltage) fuse to accommodate the tool load.

 

Q1 2014 Analyst Revenue and EPS Estimates

As I stated above the consensus estimates for Q1 2014 across the board are very much aligned.  Listed below is the chart of the Q1 2014 revenue and earning estimates by analyst.

Q1 2014 Analyst Average

 

2014 Analyst Revenue and EPS Estimates

 

The 2014 analyst revenue consensus is $714 million and positive EPS of $0.12.   Revenue estimates range from $671 million (Stifel) to $797m (UBS) and EPS estimates range from $0.04 to $0.17.   It’s interesting that not one analyst decided to “think outside the box,”  because every single one of them stayed within GT managements 2014 guidance “box” of $600 to $800 million of revenue and EPS of $0.02 to $0.18.

My  2014 revenue estimate was based on a bottom’s up approach including  focus on Apple’s iPhone 6, iWatch and iPod 2014 unit volume sales plus two additional months of inventory build.  I am firmly in the camp that Apple will introduce sapphire cover screens on both iPhone 6 models (4.7″ and 5.5″ models), the iWatch as well as the redesigned iPod touch.  My estimated Apple revenue is $1,180 million or 89% of my FY 2014 revenue.  I’m currently estimating 2014 revenue of $1,331 million and EPS of $0.62, this would represent $534 million in revenue and $0.44 of EPS above street high analyst estimates.

2014 Analyst Estimates

 

2015 Analyst Revenue and EPS Estimates

The 2015 analyst revenue consensus is $1,258 million and positive EPS of $0.90.   Revenue estimates range from $1,086 million (Stifel) to $1,643 million (Credit Suisse) and EPS estimates range from $0.45 to $1.49.   Stifel, Canaccord and Bank of America might be 3 sport athletes but they clearly do not know which sport GTAT is playing.   At a minimum I would have thought those 3 firms could have at least a minimum taken their 2014 estimates, calculated the impact of a full year for GT’s Apple business and simply added a simple unit growth estimate that is consistent with industry smartphone trend.  I know this financial modeling exercise could take a good analyst a few minutes but I figured the “Wall Street” heavyweights could at least put in a few hours to come up with something that resembles a coherent thought to support their 2015 estimates.  I fully expect GT’s 2015 analyst consensus for revenue to trend north of $2,000 million and EPS estimates to be at or above $2.00 per share driven largely by what is actually going on inside the Mesa, AZ sapphire facility.  GT’s management has guided 2015 of over $1,000 million and they have not provided an updated EPS estimate for 2015.

My  2015 revenue estimate was based on a bottom’s up approach including Apple unit sales and expected market adoption across GT’s diversified product portfolio.  The chart below breaks my 2015 revenue into key revenue category so you can  see my expected revenue contribution by each line of business.  My estimated Apple revenue for 2015 is $2,027 million or 64% of my 2015 FY revenue estimate, which is down from 89% of total revenue in 2014.   I’m currently estimating 2015 revenue of $3,177 million and EPS of $2.84, this would represent $1,534 million in revenue and $1.35 of EPS above street high analyst estimates.

2015 Analyst Estimates

 

2016 Analyst Revenue and EPS Estimates

Before I get into the 2016 estimates I first want to blast every analyst but Credit Suisse.  Three out of six dropped out of GTAT’s analyst class before they finished their 2015 EPS estimates.  Only one analyst actually completed their 2016 revenue and EPS homework assignment for GTAT.  The remaining 5 analysts need tighten up the belt, focus and listen to Pooh and just, “think, think, think!”

The 2016 analyst revenue consensus is $1,923 million and positive EPS of $1.83.   Revenue estimates range from $1,637 million (Stifel) to $2,748 million (Credit Suisse) and EPS estimates range from $1.25 to $3.00.  Credit Suisse revenue and EPS estimates are actually 50% higher than the rest of the peer group.  Now it’s clear to you as well that the analysts outside of Credit Suisse dropped out of GTAT’s analyst class and failed to do their home for 2016!  I fully expect GT’s 2016 analyst consensus for revenue to trend north of $3,000 million and EPS estimates to be at or above $3.00 per share driven largely by GT’s Hyperion, HicZ and Merlin technologies, which will all see tremendous growth and adoption by 2016.   GT’s managements guidance for 2016 is EPS in excess of $1.50 per share, however GT has not provided a revenue estimate for 2016.

My  2016 revenue estimate was based on a bottom’s up approach including Apple unit sales and expected market adoption across GT’s diversified product portfolio including a significant pickup in Hyperion, HicZ and Merlin technology sales.  The chart below breaks my 2016 revenue into key revenue category so you can see my expected revenue contribution by each line of business.  My estimated Apple revenue for 2016 is $2,216 million or 47% of my 2016 FY revenue estimate, which is down from 89% and 64% of total revenue in 2014 and 2015.   It should be noted that the Apple % of GT’s total sales in my model are expected to decrease year over year as GT’s diversified growth strategy continues to bear fruit from the seedlings that were planted over the last few years.  I’m currently estimating 2016 revenue of $4,736 million and EPS of $5.26, this would represent $1,988 million in revenue and $2.26 of EPS above street high analyst estimates.

2016 Analyst Estimates

 2014 to 2016 Revenue and EPS Estimates, Price Targets and Key Ratios

The chart below has all of the goodies you want to know.  The average analyst Price Target is $21.89 and it ranges from $26 (Credit Suisse) to $13.75 (Stifel).  The average analyst Price Target yields a 2016 forward PE of 12 based on an average 2016 EPS estimate of $1.83.  My price target is currently $85 based, which actually only represents a forward PE of 17 based on my 2016 EPS estimate of $5.26.

 

 

Analyst 2014 to 2016 Summary

 

Conclusion

Most of the Wall Street analysts are deadbeat analysts when it comes to GT Advanced Technologies.  Credit Suisse has clearly put in the time and done all of their homework assignments for 2015 and 2016.  The rest of the Wall Street analyst community decided to drop out of the GTAT analyst class because they didn’t want to “think, think, think”.

I’ve done more than my fair share of thinking in regards to GT Advanced Technologies and the company’s future prospects.  My estimates are clearly much higher than Wall Street but so is the time I’ve dedicated to my craft.  Wall Street will continue to lag my estimates by 6 to 9 months and that should be expected.  I also want to be very clear that yes, GT needs to deliver on a lot of fronts to hit my revenue and EPS forecasts for 2014 through 2016 and there is certainly some risks that should be discounted.  However, at the same time, I believe Apple will likely introduce sapphire cover screens on the Apple iPad before the end of 2015.     A sapphire covered iPad could contribute an additional $1,000 million of annual revenue above and beyond my already street high estimates in the year following its initial release.  Additionally, Hyperion and Merlin technologies are game changers in their respective marketplaces and may generate an additional $1,000 million or more of additional sales that have not been included in my estimates.    Even Goldman Sachs is modeling 2018 Hyperion sales at over $2,000 million a year with a EPS contribution of $1.58, which assumes a 60% conversion of the market opportunity and a gross margin of 35%.  A slight shift Hyperion’s expected  adoption cycle to the left and GT’s sales could rise by billions sooner rather than later.    Lastly, GT has new products are waiting in the wings for the market to develop and although we have no clear line of sight to these new products and technologies today, it would be prudent to expect up to another $500m of new product revenue that will be moved over from R&D and introduced into the marketplace by 2016.

My price target is currently $85 based, which actually only represents a forward PE of 17 based on my 2016 EPS estimate of $5.26.  I try to stay away from PE ratios but GT’s expected rapid growth over the next several years could certainly support a PE of 30 to 50, once the world see’s how they can deliver the goods to Apple.  I will also let you do the math and take my 2016 EPS estimate and multiply it by a justified PE of 30 to 50 to see where I think GT’s share price could be headed over the next few years.  Yes I am fully aware that the math works out to a share price well into the triple digits and a market cap that exceeds $20 billion and to be honest that may just be the beginning for GT Advanced Technologies.

 

Full Disclosure: I am long GTAT and have no plans to buy or sell any holdings in the next 72 hours.

 

 

 

 

 

 

The research note from GS was more positive on Apple sapphire screens as well as additional equipment orders including Hyperion for 2016. EPS estimate increased to $1.94 for 2016 and price target raised from $20 to $24.

Additionally Goldman sees the potential for Hyperion to add “well over $1 EPS” to GTAT’s bottom by 2018 assuming 150 tools are sold and they believe “little if any of Hyperion’s future value is currently being reflected in GTAT’s shares”.

Goldman is tracking 150MT or $2B of announced polysilicon projects and GTAT is the leading Poly equipment supplier globally with over a 50% market share.

Update: GTAT bid ask $18.05 v $18.18 as of 7:20 ET 5,900 shares traded

The Apple mosaic is building momentum. In recent weeks, we see a positive read-across for GTAT from (1) sapphire processing equipment vendors in Europe – we believe for display covers – plus (2) reports of more Apple-related sapphire developments (e.g. fab expansion, patent). Deep dive suggests upside in equipment. We raise our 2015-16E EPS to $0.98/$1.94 solely on higher equipment volumes. On top of a potential poly capex recovery, we see $300-$400mn of “new” equipment upside by 2016
owing to monocrystalline tools and greenfield technology (Hyperion).

Against this backdrop, we believe recent Apple-related data points continue to trend positive and with our 2015E-16E estimates moving higher on the back of new equipment opportunities, we reiterate our Buy on GTAT with c.40% upside to our new $24, 12-month price target.

Analyst Reaction to 3/14/14 Technology Conference

Goldman Reiterates Buy Rating:  GTAT affirmed its EPS goal of over $1.50 by 2016, though Goldman sees the estimate is conservative given the $4 to $5 billion market opportunity that awaits before factoring in its Apple.   GTAT could see large upside from Hyperion.  The analyst doesn’t see sapphire lamina being included in the upcoming Apple iPhone 6.

UBS Ups PT to $22: UBS sees GTAT new product sales offsetting some sales exposure to Apple, which will be a long-term positive for the company. HiCZ furnaces making mono-crystalline solar wafers (estimate $1bn market by 2017).We estimate equipment gross margin to be in a range of 35-40% and materials gross margin to be in 25-30% range. We expect Hyperion for sapphire and Merlin for solar to be the most meaningful contributors to GT’s sales in 2016 with initial orders expected in 2H14 UBS concluded.

Canaccord Reiterates $21 PT: “We reiterate our buy rating on GTAT shares as we believe the Apple opportunity plus the recovery in the solar market should allow the company to exceed Street expectations,” Canaccord analysts Jonathan Dorsheimer and Josh Baribeau wrote in a Monday research note. “Additionally, GT has an increasing number of ‘irons in the fire,’ which reduces diversification and customer concentration risks.”

Credit Suisse Ups PT to $26: Takes 14’/15’16’ EPS estimates from $0.13/$1.38/$2.12 to $0.14/$1.49/$3.00.  Takes 14’/15’16’ Revenue estimates from $717m/1,559m/2,123m to $728m/$1,643m/$2,747m.  “the other businesses in polysilicon equipment, ingot equipment, sapphire equipment, and new products like Hyperion for thin laminates and Merlin for cell grids deserve more credit in the valuation and will likely lead to higher consensus estimates, especially as orders resurge in late 2014 and early 2015”.

Obscure Analyst Ups Target: $75-100: “2015 and 2016 estimates have not changed significantly from what I had before the 3/14 Technology Conference.  My margin has improved based on comments from TG regarding Hyperion and that it would carry “superior margins” to GT’s historic rates because no one else has a product like it in the marketplace.

Updated Revenue & EPS: 2015 $3.177 B – $2.84 EPS, 2016 $4.736 – $5.26 EPS

Previous Revenue & EPS: 2015 $3.177B – $2.74 EPS and 2016 $4.416B – $4.26 EPS.

Apple Upgrade Cycle Making News
 
Forbes: Is reporting that the “Mother lode” of Apple upgrade cycles is coming in 2014.  Citing ISI analyst Brian Marshall is predicting Apple will release 2 phones 4.7″ and a 5.5″ model.
 
We estimate the current iPhone installed base to be about 260mil users (roughly equivalent to the last 7 quarters worth of iPhone units). By our calculations, we estimate slightly over half of iPhone sales today go to upgrades (with the majority of new users coming from international markets). However, we believe that while the upgrade rate (i.e., % of installed base upgrading their device in a given quarter) had hovered in the 10-11% range over 2011-12, it has now dropped closer to 9% as users find few compelling reasons to upgrade. In peak quarters, the upgrade rate has reached the ~12-14% range and we expect a similar upgrade rate in 2H14 for iPhone 6, if not better. We believe this could drive ~$3.00 (or ~10-15%) EPS accretion over 2H14 assuming an incremental ~3% of the base upgrades each quarter.
GT’s Magical Merlin Technology
Mark Osborne (PV Tech): Covers GTAT’s Merlin Technology, the game changing addition to the solar market.
“We are very excited about the progress we are making in developing what we believe will be a true game-changing technology to lower the cost of solar modules,” said Tom Gutierrez, GT’s president and CEO. “Our Merlin technology uses mature, proven manufacturing processes to produce the flexible grids and we are confident that we can scale grid production to meet the requirements of the solar industry. Our Merlin technology is expected to fundamentally change the way modules will be manufactured, shipped and installed in the future.”
 
TG on CNBC with the Fast Money TeamOf course the first question was about Apple from the Fast Money team was about Apple.  TG went right into answering it by focusing on the creation of US jobs and the fact it is a sapphire manufacturing facility under a 1.4m square feet under roof.  TG indicated that GT has received 2 of 4 prepayments so far from Apple and things are going well.  When asked about it will be up and running to full capacity, TG stated, “As you can imagine in that industry surprise is a very important element in introducing products.”  TG also stated, that “the unique nature of what we are doing for Apple, we are the probably only ones in the world who can pull this off”.  He also said GT is not just about Apple, We introduced products (on Friday) that should drive 3-5b of incremental market opportunity over the next 3 to 5 years that are all equipment products”. 
 

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GT spent near 3 hours going over their new technology and painted a tremendously positive picture for GT’s future.  I wasn’t there in person but you could tell TG’s swagger was in full gear.  He was excited, very excited, so excited, the most excited he’s been in his 5 years with the company, so excited he even chose to dress up for the occasion and leave the jeans at home.  The event also celebrated the “new GT” and discussing adding well over $3b of potential market share for the company.

I’ve updated my revenue model based on the Technology update on March 14.  TG made it clear that he does not bring new products to market until the market is ready.  With that said there will be additional items brought to market by 2016 and 2017 but at this point they are not included.  It is also likely that Apple will adopt sapphire covers for the iPad in the future, whether they are sapphire laminates on some sort of glass or pure sapphire covers like the iPhone and iPod. In additional to Apple, I fully expect GT to enter the sapphire laminate material business and those revenues are not included in my current model. Additionally, TG acknowledged there are additional products in R&D that they are working on as well and they will continue to invest in R&D spending 4x what they used to spend (consistent with what we saw in 2013).

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Merlin – GT expects to receive their first PO for Merlin in 2H2014.  GT’s estimated peak market share of 20% by 2018 might be very conservative, as TG pointed out “the potential is staggering”.  GT made a point on the call that, “once solar was in the bag” for Merlin they would move into other markets.  TG indicated that once penetration hits over 20% for Merlin they would likely look to bring this production back to the US and open up a plant of some kind to get an additional piece of the pie.  Merlin customers so far have been saying “we want it tomorrow and we want exclusive rights,” at this point GT is not granting any exclusive rights to the product.  Merlin Technology is also agnostic to the specific cell design and offers efficiency improvement either way.  A product that offers a 10%+ cost savings, half the weight, twice the flexibility and more efficient design sounds like a game-changer to me!

HiCz – GT has pulled forward this product and is expecting an order of substance to be received in 2014.  I expect revenue recognition beginning in 2015 related to this order.

Mono/Poly Crystalline Markets have come back faster than TG thought and this is reflected in the DSS and SDR revenue expectations beginning in 2015.  GT’s product offer the lowest capital cost per kg in the market.  It is no wonder they remain confident to win every bid they are involved in related to Polysilicon Production Facilities.

Hyperion – Working with Tier 1 Power Device Manufacturers for SiC.  Engaged with lead LED customers for downstream LED.  Working with a lead Solar customer in Asia.  Working with Military and Medical industries and expect to see a purchase order in 2014.  Hyperion 4 can produce 10x more power than any existing implanter tools on the market and GT is pricing their technology at the same ASP $ level as competitor implanter tools on the market.  Hyperion 3 took 200 man years to assemble and GT has moved from the Hyperion 3 to the Hyperion 4, which produces 2 mega electron volts up from 1 mega electron volts, that could be found in the Hyperion 3.  The technology is protected by 55 patents and 25 more that are pending.  The current patents are across the entire solution, application, process and equipment.  This is the only exfoliating machine on the market because of it’s unique design and power.

My Estimates

My 2015 and 2016 estimates have not changed significantly from what I had before the 3/14 Technology Conference.  My margin has improved based on comments from TG regarding Hyperion and that it would carry “superior margins” to GT’s historic rates because no one else has a product like it in the marketplace.

Updated Revenue & EPS: 2015 $3.177 B – $2.84 EPS, 2016 $4.736 – $5.26 EPS

Previous Revenue & EPS: 2015 $3.177B – $2.74 EPS and 2016 $4.416B – $4.26 EPS.

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Screenshot - 3_12_2014 , 12_28_29 AMImage

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~Obscure Analyst 3/16/14

I am long GTAT and have no plans to buy or sell any holdings in the next 72 hours (or even 3 years based on this forecast!)

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GTAT Hyperion Equipment Business worth $13-20 at a Minimum Right Now! – by Matt Margolis

GT management spent several hours going through their technology tool set and threw a lot of information at investors.  I am attempting to put together the pieces to come up with a breakdown for everyone.  The first area I wanted to focus on was the Hyperion 4, which is commercially ready in 2014.  GT management also provided investors with their 4 year projected unit sales of Hyperion.  Going from approximately 10 units to 200-250 units by 2018.  The unit number is not tremendous but at a ASP of $4-15m each, the dollars and cents add up fast.  I have modeled up a sales ramp from 2015 to 2018 along with 3 valuations on ASP, from $4m to $15m with a most likely scenario of somewhere in the middle at $9.5m per Hyperion 4 unit.  I am valuing just the equipment sales component of Hyperion and this has nothing to do with material sales such as sapphire laminate for electronic devices and consumer applications.

Screenshot - 3_14_2014 , 1_39_17 PM

As you can see from my chart Hyperion has the potential to over $2b a year in sales and contribute over $3.00 per share to GT’s bottom line by 2018.  I have assumed GT can convert Hyperion sales of 50% of their potential identified market.  It is clear from the call today that the Hyperion 4 is head and shoulders above the competition.  Below are my estimated 2015 and 2016 contributions assuming middle of the road pricing and a 50% conversion rate of the potential market.  The Hyperion 4 technology is now a proven solution and is being used by beta customers today and will be delivered to several other customers by the end of the year in LED, Medical and other areas.

2015 – $48m – $0.08eps

2016 – $404m – $0.65 eps

Taking FY16E x20-30 I’m coming up with $13-20 valuation for just Hyperion 4 equipment sales!  However, if Hyperion is as good as GT management thinks it is my valuation is still very low.

Below are some Hyperion slides from today’s presentation.

Screenshot - 3_14_2014 , 1_26_24 PM Screenshot - 3_14_2014 , 1_26_40 PM

Full Disclosure: I am long GTAT and have no plans to buy or sell in the next 72 hours

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B of A raises GTAT Target $18.50 to $21.50

Posted: March 11, 2014 by mattmargolis24 in GTAT Investor Information
Tags: , ,

3rd upgrade since 2/24/14 from B of A

In a report published today BofA Merrill Lynch raised the price target on GT Advanced Technologies (GTAT) to $21.50 from $18.50 and Reiterated its “Buy” rating on the stock.

“GTAT announced a new agreement with Cosmos Chemicals Berhad to supply poly reactor and technology (we estimate FBR technology to make TCS, Siemens to make silicon) worth $336M for a 25K MT/annum polysilicon facility in Malaysia. Given that GTAT’s polysilicon backlog was ~$300M exiting C4Q13 and the orders were well below that, this news is incremental, in our view. This also highlights the fact that GTAT is more than just an AAPL supplier.” BofA Merrill Lynch said

“We reiterate our Buy rating. GTAT should benefit as the supplier of Sapphire for mobile applications to AAPL, the polysilicon reactor (non-sapphire) segment bottomed out in the December quarter (4Q13 revs 98% below the peak in C1Q12). As fundamentals improve, the rev/EPS should recover off the trough levels in CY13.” it added

http://www.theeconomicdaily.com/2014/03/11/bofa-merrill-lynch-raises-price-target-on-gt-advanced-technologies-to-21-50/

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GT Advanced upgraded to Outperform from Neutral at Credit Suisse
Credit Suisse upgraded GT Advanced (GTAT) based on the potential of its new technology platform called Hyperion, an improving outlook for polysilicon and sapphire markets, and progress on supply agreement with Apple (AAPL). Price target raised to $24 from $18.

GTAT shares are up 6.7% to $18.13 in premarket trading with 56,000 shares traded as of 7:38 AM

(sounds like CS read the Obscure Analyst report)

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I’ve consolidated the latest round of analyst coverage into one place. I’ve also added the Obscure Analyst numbers and detail so you can compare them side by side. One of the main differences in my estimate is that I have added Apple revenue for iWatch and iPod and my non Apple revenue indicates that GT’s “other” business lines and new business lines are set to contribute in a major way beginning in 2015 and beyond versus the “Wall Street” estimates that completely ignored GT’s non Apple business.

I think it is important to remind everyone that not too long ago GTAT’s Poly, PV Equipment and Sapphire (non-Apple) used to bring in close to $1B of annual revenue and over $1 EPS. If you look at those business lines today partnered with additional technological advances (Hyperion, HicZ, MVPE & PVD) and new revenue streams (SiC, Hyperion andTBD) along side the ripening macroeconomic conditions, you would realize, that the “old” business model can double from an annual clip of $1B to $2B by 2016 in a snap.

Screenshot - 3_5_2014 , 11_41_06 PM

My detailed analysis and coverage on GTAT can be found here http://wp.me/p4iTqy-lo

Full Disclosure: I am long GTAT and have no plans buy or sell any holdings in the next 72 hours. If you asked me for my real answer I would tell you I have no plans to sell in the next 2 years, but I’m just a bit more obscure than most.

The Obscure Analyst has initiated coverage of GT Advanced Technologies and has issued a $65 – 12 month price target.   GT’s core business outside of Apple is heading into a very receptive macroeconomic environment that will trigger significant new orders across LED, PV and Polysilicon.  The macroeconomic environment coupled with GT’s new technologies and innovations across LED, Solar and emerging markets will drive significant new bookings, that is expected to exceed $1B in the 2H 2014.  Additionally, the Obscure Analyst expects Apple to roll out sapphire cover screens for Apple’s iPhone, iPod and iWatch in 2014.

Furthermore, a full Apple sapphire laminate adoption across Apple’s iPad and MacBook is not included in this estimate. A sapphire laminate on the iPad and MacBook could provide an additional $1.6B in 2016 annual revenue.  Furthermore, if Apple, adds thin-film solar cells at $2-3 per device provided by GT, it could provide up to $1.2B of additional revenue that has not been factored into this analysis.   Lastly, the price target does not include any new technologies that may emerge out GT’s 3/14/14 Technology Conference, that might have a significant impact on 2015 and 2016 sales estimates.

EPS and revenue estimates for 2014, 2015 and 2016 are in the image below:

Screenshot - 3_5_2014 , 11_41_06 PM

Full Detailed Report is Below

I’ve been following GT Advanced Technologies for several years and their technological expertise and product roadmap is becoming more and more crystal clear every day (no sapphire pun intended). GT’s management team is full of extremely brilliant scientists and technology visionaries. The contract GT signed with Apple in November to provide sapphire material, which will be in the form of sapphire cover screens for mobile and sapphire laminate screens for iWatch and possibly more.  Apple is not the cleanup hitter in GT’s technology portfolio, even though the Wall Street analysts are putting all of their time and effort into Apple and coming up with a valuation that is driven by the Apple business. I might be the Obscure Analyst on street, but unlike the overpaid under performing Wall Street analysts, I actually understand GT’s message loud and clear. If the Wall Street analysts could see the forest for the trees, they would realize GT is about to launch phase 2 of their war chest.

Apple is the lead-off hitter in what will be an American League lineup, similar to my Boston Red Sox, whose lineup was loaded from top to bottom with talent and key contributors. GT’s sapphire business with Apple will take off with amazing speed and grace, like a prototypical money-ball lead-off hitter, that sets the stage for the “other products” in GT’s lineup, to drive in an incredible amount of additional revenue and profits for years to come. The sapphire contract with Apple will be worth over two billion dollars in annual revenue in 2015, but Apple sales could be a minority share of GT’s revenue by 2016.

2014 Guidance

GT Advanced Technologies reported Q4 results on February 24th and gave the investment community an update on the progress in Mesa, AZ. Management gave investors even more confidence that GT has the ability to scale the operations in Mesa with Apple and meet their aggressive sapphire screen price objectives. As GT put it simply, “it is all about just execution” at this point.

The company maintained their guidance in 2014 at $600-800m in total revenue,with  approximately 15% in the 1H 2014 and 85% in the 2H 2014.  Sapphire revenue would make up over 80% of 2014 sales.  During the November call, if you remember GT stated that the majority of their ASF (furnace) capacity would be tied up by Apple.  In January, they reiterated their focus that 2014 will be all about delivering to Apple. My translation: a immaterial amount of ASF furnace sales will be converted from the current backlog to revenue in 2014. With that said, I am estimating sapphire materials sale excluding Apple to be $30m in 2014.

GT announced that they had deployed $180m of PPE (majority to Apple). Import records indicate that GT HK’s worldwide operations shipped furnaces from HK to Mesa, AZ.  GT management also stated, that they would spend $500-600m in capital  expenditures, with most of the heavy lifting occurring over the first half of the year.   Assuming GT is spending $500m of capital expenditures and $180m that is being deployed from existing PPE this would allow them to purchase approximately 2,300 furnaces to grow sapphire boules.  I also believe that Apple purchased an additional 1,000-2,000 furnaces that they will own inside Mesa which seems to aline with the ambiguous contract agreement between GT and Apple.  The contract did contain language that GT would purchase Apple equipment and be reimbursed no more frequent than every two weeks.  The additional furnaces purchased or not purchased by Apple have no impact to my current estimates.

I am estimating that $75-100m of capital, will be spent to build out approximately 50 Hyperion Ion Implanter machines. The Hyperion machines coupled with advancement in GT’s solar cell research will be used to produce GT’s solar cells that will be discussed in-depth by management on March 14, 2014 along with several other products coming in 2015.   Additionally, I expect Hyperion to make its way to Mesa, AZ by the middle of 2014.   Hyperion technology is likely to be used to produce sapphire laminates for Apple’s upcoming iWatch.

Apple Cover Story

The Apple deal will provide GT with the recurring revenue and consistent cash flow that it needs to nurture their investment seeds that have been dormant for the last several years. GT’s future is extremely under appreciated and misunderstood and they cannot and should not ever be looked at as a “sapphire materials company” or as “just a solar company” ever again. They are quietly establishing themselves as a leader in cutting edge, disruptive technology, and they are now well-funded, well versed and ready to take technology places we have only dreamed of. GT’s CEO drove this point home very early in the Q4 2013 conference call on February 24th (see below).

Although we have significant opportunities in sapphire, the GT story is not only about our emerging sapphire materials business. In fact, our entry into sapphire materials may enable us to expand into other materials segments once we have fully ramped the operation in Arizona. The many diversification and investment seeds we have planted over the last several years in the LED, power electronics, advanced solar and industrial markets are expected to begin to bear fruit over the next 18 months. We are seeing significant interest in our new products and now expect equipment orders from these initiatives to be received during the latter part of 2014, with meaningful revenue recognition beginning in early 2015

As some of you might have already noticed, I’ve been digging even deeper into GT’s technological tool set to figure out where these disruptive technologies can be applied. At this point it’s safe to say that GT has more tools than any hardware store in town! GT saw an opportunity in sapphire cover glass when they purchased Crystal Systems.  GT dedicated the time and spent the money to monetize their expertise of the technology and create to hit a price point, that made the sapphire cover deal attractive enough, to land the Cupertino whale. During the Q&A section of last Monday’s conference call TG provided what I would characterize as his “money back guarantee” that GT will deliver related to output, cost and timing.

Our confidence comes from deep understanding of the unique technology that we’ve developed for these applications. And as I’ve indicated before, we’ve continued to progress on the performance of our ASF furnaces and the cost per millimeter that we expect to achieve. And so, we’re quite confident in our technology. And the rest of it is execution. I mean these are sizable projects and so execution has always an impact, but we’re confident. And as you know, we generally don’t give guidance unless we have a pretty good understanding that we’re going to hit it.

GT’s sapphire sales to Apple do not have any capacity restraints. The Mesa sapphire plant measures 1.3 million feet can comfortably hold 4,000 to 5,000 ASF furnaces at a minimum. I am expecting Apple to rolls out sapphire cover screens for the iPhone, next generation iPod and sapphire flexible sapphire laminate displays for the iWatch no later than Q3 2014. The iPod may surprise some of you, but an Apple job posting in January gave away a big clue that a new design was not only coming to the iPhone but to the iPod as well.

The iPhone and the iPod at quick glance are nearly identical, same dimensions but the iPhone has more functionality than the iPod because it operates as a phone and not just a hand-held device. The next Apple product on the docket is the iWatch.  The iWatch is expected to sport a flexible display, will likely feature solar charging and may even sport two batteries; an integrated core battery and a secondary battery that could be charged by kinetic energy or solar power (possibly supplied by GTAT). I have assumed GT will have their Hyperion technology up and running inside Mesa by the middle of the year to fulfill the inventory buildup needed for the iWatch release in 2014. Additionally, if you look at GT’s recently issued patents (resulting from Hyperion beta testing) it gives a clear indication that GT has progressed Hyperion far enough to it’s one-of-a-kind technology to produce sapphire laminates.  Apple already holds various sapphire patents including a laminate patent that describes taking two sapphire laminates in combination with or without glass to build a sapphire screen The Apple iWatch is expected to be relatively small (2 x 2 inches), which will require far less sapphire and time to ramp up sapphire laminate production using GT’s Hyperion technology.

There has been a lot of “noise” since November as to whether or not GTAT will be producing sapphire cover screens for Apple as well as discussions  whether or not the screens would be full sapphire covers or laminates. The answer is GT will be supplying full sapphire cover screens for Apple’s iPhone and iPod. Sapphire laminates are a terrific cover  option for the iPhone and iPod, however Apple will want to take advantage of the “performance upgrades” that will be made available by a full sapphire cover screen.  To add some more validity to my Obscure stance, I’ve included some comments Tom made over the past two years regarding sapphire cover screens.

Tom Gutierrez – Comments on Sapphire Over the Past 2 Years

we believe that current sapphire fabrication techniques, excluding Hyperion, will support the adoption of sapphire in several applications including smartphones and point-of-sale systems

we also believe that there could be an incremental future market opportunity using Hyperion to create lower-cost sapphire laminates for broader mobile phone and after market applications

Sapphire laminates are expected to have some, but not all, of the attributes of a pure sapphire solution and are expected to have a cost structure that rivals current cover glass products on the market today

I don’t think it’s a cost advantage discussion, Jeff. I think it’s really a — if you’re in the box of cost, it’s performance, okay? The performance of the sapphire relative to scratch resistance, relative to breakage resistance, relative to optical qualities as such and it also carries a pizzazz with it, okay, that makes it a somewhat different solution than the existing solutions are. But what I can confirm to you is that we’re in the cost box. We’re in the cost box, it’s now about performance. Can we demonstrate and can our customers demonstrate as they’re piloting our capability whether or not it’s something that they want to do. There is a cellphone out there already that uses sapphire. The Vertu cellphone uses sapphire, and, as you know, all high-end watches use sapphire for the same reasons: scratch resistance, optical qualities, et cetera. And so it’s not a cost down, it’s a performance upgrade

Apple Product Roadmap 2014-2016

GT management confirmed that they have driven down the price to where they want, at this point I am estimating ASP of $10 per screen on average for the upcoming iPhone(s) and iPod. Apple’s iWatch is expected to support a flexible sapphire laminate display. The “slapwatch” patent filed by Apple indicates that the display will most likely be flexible in nature and sapphire laminates are a perfect candidate to fill the required job. I have estimated an average ASP of $4 per iWatch display. I am expecting the iPhone/iPod and iWatch to arrive no later than September/October 2014. My model estimates that sapphire covers will be used in 70% of Apple’s unit sales in 2015 and beyond. Apple has launched older iPhone models in India and may continue to keep around some lower cost models in select markets. My forecast of unit sales are derived by utilizing the smart phone industry trends provided by IHS.  My calculation base Apple market share at 17% of the total smart phone sales. I feel my 70% penetration rate for sapphire for sapphire cover screens for the iPhone is reasonable but conservative and will provide a safety to my market share estimate if actual sapphire screen adoption percentage comes in above 70%.

Apple Product Roadmap 2014-2016 (Excluded From my Estimates)

What is not included in any of my Apple estimates is potential and likelihood that Apple adds sapphire laminates screens to the iPad and MacBook.   Additionally, I have not included any thin-film solar cell revenue that could be received from Apple if GT supplies solar cells for Apple’s product lines in 2014, 2015 or 2016. The sapphire laminate screen pricing is a mystery, but I am estimated average ASP for sapphire laminates for the MacBook and iPad at $13 per device. In a bullish scenario, if Apple rolls out sapphire laminates for the iPad and MacBook it could add an additional $1.6B in revenue annually by 2016. Additionally if Apple added Solar cells at $2-3 on average per device this could additional $800m to $1.2B of additional revenue by 2016. The addition of solar cells across all of Apple’s devices and introduction of sapphire laminates in the iPad and MacBook represent an additional $2.8B of annual revenue or $3.00 EPS in 2016. My review of Apple’s technical product patents related to sapphire and solar charging strongly suggest that both of these events will happen and it’s not a question of if but when.

Other Lines of Business

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I expect GT’s existing backlog of $600m to be worth $450m by the end of 2014. I am expecting new orders of $1.5B to arrive in 2014 with approximately 77% of those orders to come from existing markets including PV equipment, sapphire equipment and polysilicon. The macroeconomic environment for poly, solar and sapphire are all extremely supportive heading into 2014. LED equipment utilization is at or near 100%, Solar is expected to run through the excess poly supplies and drive up the polysilicon price per KG from $21 to $25 by the end of 2014. Solarbuzz is already estimating a major comeback in solar capital equipment purchases by 2015.   GT is already “well positioned on several on projects” in the Middle East, that are worth $300-500m annually beginning in 2016. GT Power Tec agreement is likely to contribute $100-200m in revenue in 2015 and 2016 alone. GT’s solar and PV business averaged a combined $600m in recognized revenue over 2010 and 2011. The upcoming capital expansion will reward  low-cost, thin-film and innovative solutions with significant orders.  The remaining $350m of new orders or 23% of 2014 bookings will come from GT’s Hyperion and SiC (Silicon Carbide) business

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The Obscure Analyst’s Takeaway

The Apple deal will provide GT with the recurring revenue and consistent cash flow that it needs to nurture their investment seeds that have been dormant for the last several years. GT’s future is extremely under appreciated and misunderstood but Wall Street analysts and GT cannot and should not ever be labeled as a “sapphire materials company” or as “just a solar company” ever again. They are quietly establishing themselves as a leader in cutting edge, disruptive and game changing technological innovation. GT is prepared, willing and able to take their disruptive technology and created market niches places we have only dreamed of or seen in sci-fi movies. My research report was completed for all of the little people, who rely on Wall Street firms and their inability to deliver in-depth research on GT Advanced Technologies. Everything mentioned in this article, including; patent information, patent interpretation, job postings, market trends, products and industry trend, was readily available for anyone, who took the time and knew how to find it. I hope all of the Wall Street analysts take some notes of how to deliver an informative, in-depth research report. Lastly, I have to give thanks to my fellow street analysts for funneling information and informative ideas my way because this could not have been done without all of your support!

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Full Disclosure: I am long GTAT and have no plans to buy or sell any holdings in the next 72 hours