Posts Tagged ‘sapphire industry’

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



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

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.


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.



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