Posts Tagged ‘Sapphire’

iPhone 6 Sapphire Cover Screens Confirmation May be Imminent 4.7″ iPhone 6 Cover Screens Are In Circulation. Sapphire Confirmation May be imminent and Meyers Burger Receives a Follow-Up Slicing Order From An Existing Customer

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Significant new developments related to GTAT’s sapphire operations will be revealed via WALLSTREETforensics within the next hour.

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  • Installed furnaces inside Mesa, AZ are estimated to exceed 2,500 tools
  • Apple Base Case Revenue likely to exceed $2B and $2.00 EPS
  • Sapphire boule size are estimated to approach 235 kg

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

Get in early and enjoy my top investment picks.

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.

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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.

 

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CNBC is reporting that Brian Blair of Rosenblatt Securities May 27th report on the Asia supply chain spotted iWatch models with sapphire screens.

Additionally, the same report said the upcoming iPhone 6 would use sapphire glass from GT Advanced.

Korean media is reporting this morning that LG and Samsung are sampling sapphire for mobile cover displays. Currently the leading sapphire growth and equipment manufacturer GT Advanced Technologies is operating the largest sapphire manufacturing facility in the world on behalf of Apple. Apple is expected to add sapphire cover displays to its highly anticipated iPhone 6 mobile phone later this year. The biggest knock on sapphire cover screens has been price and availability but perhaps one of both of these factors is about to change.

Via Phone Arena and ETNews

Full Disclosure I am long GTAT and I have joined PTT Research. My premium Forensics Newsletter is scheduled to launch on June 2nd. The premium paid service option will grant my paid subscribers exclusive content weeks before my analysis is published on Seeking Alpha, the Obscure Analyst blog or any other website. Another advantage of PTT is the subscriber Forum that allows sharing of ideas and analyst Q&A. Did you know, that subscription based investment newsletter are typically tax-deductible?

by Matt Margolis

Thanks again to my street analyst that provided pictures of the exterior building that were taken this morning on 4/10/14.  My street analyst also took pictures on 2/16/14 so I can have some fun comparing the images to show the significant progress that has been made in just under 2 months.

  • Line of solar arrays have been installed on the North-side of the building and you can notice the reflection from the sun on the building all around the 3740 BLD-1 sign
  • 2 Huge water storage tanks, massive cooling tower system and large electrical station appear to be completed
  • 100 foot long and 75 foot high pile of dirt near the large electrical station is gone since 2/16/14 and the large crane has moved
  • On the northwest side of the building there appears to be an extremely large generator along with some piping that goes into the building and directly into the ground.
  • The parking lot was full and trucks and golf carts were racing around the building hurrying to get work done.
  • The city of Mesa is in the progress of expanding the main roads leading up to the plant from 2 lanes across to 4 lanes across.
  • A significant amount of large spools of electrical cable that were partially used were seen on the ground outside of the building.
  • The north side of the building seems almost complete as it has been landscaped.

Below are the 2/16/14 and the 4/10/14 images of the West Exposure as well as the closeup of the electrical station that is between the crane and the water towers in the 4/10/14 image

Electrical Station 4/10/14

Image

4/10/14 West Exposure Electrical Station, Cooling Tower System and Water Storage Towers

  • White long building is new and has been completed since 2/16/14  just under crane

  • Black structure to the right of water storage power has been completed

  • Electrical Station has been completed

  • Piping connected to water storage for cooling system is now complete

Image

2/16/14 West Exposure Electrical Station, Cooling Tower System and Water Storage Towers

  • Incomplete electrical station

  • Incomplete piping from water storage towers

  • Massive 100 foot long and 75 foot high dirt pile

  • Crane outside of water towers has now moved

  • Next to water storage (right) is another structure which is incomplete but has been completed on 4/10/14 photo

 

Image

 

 

 

Solar Arrays Installed on North Side (notice reflection on building and solar arrays up close to building

April 10 Northside Solar Arrays April 10 Northside Solar Arrays Image 2

Northwest Exposure – Large Generator and Piping Entering Building and connected to the ground

Northwest Piping and Generator

 

Northern Exposure Looking Complete on 4/10/14

2/16/14 (Left) versus 4/10/14 (Right)

 

Feb 17 Northern ExposureApril 10 Northern Exposure

Parking lot looking Full on 4/10/14.  

2/16/14 (Left) versus 4/10/14 (Right)

Feb 17 ParkingApril 10 Parking

Extra Electric Cables Everywhere and large piping (4/10/14)

Extra Electric Cables Extra Electric Cables 2

 

West Side Rock Truck Frenzy (4/10/14)

April 10 West Truck Derby

Elliot Road Landscaping Looking Complete (4/10/14)

Elliot Road Landscaping

 

 

 

A complete breakdown will come later but here is a sneak peak detailing some of the Mesa sapphire plant activity. Heat exchangers, cooling towers, associate piping and electrical, fan coil units, new exhaust for the UPS and battery rooms. Lighting for north and south end house and pump.

ELEC BLDG NORTH 3600 SF
ELEC BLDG SOUTH 1440 SF
PUMP HOUSE 2000 sf

BLD2014-01287 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.

Exterior bldgs

BLD2014-00391 PACKAGE – NORTH ELECTRIC BUILDING. JOB #14-B-35380. BUILDING IS A 3600 SQ FT, F-1 OCCUPANCY, TYPE IIB CONSTRUCTION, FIRE SPRINKLERS. 3
BLD2014-00397 PACKAGE FOR E HOUSE SOUTH BUILDING. STEEL BUILDING, 1440 SQ FT, F-1 OCCUPANCY, CONSTRUCTION TYPE IIB. 3
BLD2014-00399 DESIGN PACKAGE – PUMP HOUSE BULDING, A 2000 SQ FT, F-1 OCCUPANCY, TYPE IIB CONSTRUCTION, SPRINKLERED BLDG.

PLN2013-00416 LAND SPLIT APPLICATION REC
DOC2013-00270 COPY OF ZONING CASE FILE Z11-012

Additional evidence details Apples approval to begin production in module 1 of the Mesa, AZ sapphire facility.

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20140409-095728.jpg

by Matt Margolis

The notion that GTAT is the only company that can deliver Apple’s sapphire goods may have come up on my own but the idea was driven home during TG’s onset interview with CNBC’s fast money on March 17th.   During TG’s three minutes on Fast Money he defended he focused on creation of jobs, the unique nature of the Apple project and defended the margin on Apple.

Commitment for jobs back in the US, it is a sapphire manufacturing facility thats all we’ve said and Apple has said, it is a rather sizable operation with 1.4m square feet under roof.  What we reported on our last call is that we are going to probably going to hit 1,000 employees mid year as a company and things are going well.  As you can imagine in that industry surprise is an important element of introducing new products.  We are spending a lot of time ramping the facility up.  This will be a lower margin but I think the unique nature of what we are doing for Apple and we are probably the only ones in the world who can pull this off put us into a good position.  We are not going to be selling commodities here we are selling and making good margins but the fact of the matter is the margins are below the margins we would get for our equipment.   This is not just Apple we introduced products that should drive 3 to $5b of incremental market opportunity over the next 3 to 5 years that all are all equipment products in sectors we have entered over the last 3 or 4 years.

My 4 Why’s

Why does TG feel that GT is the only ones in the world who can pull this off?  Apple already had an existing arrangement with Asian sapphire manufacturers to supply key sapphire components for the iPhone camera lenses and the home button covers.  Why wouldn’t Apple just stick with those suppliers and have them grow more sapphire?  Why would Apple pour $2B into a sapphire manufacturing facility with a company that has never produced sapphire  to this scale?  Why are the analysts minimizing the potential size of GT’s recurring revenue stream from Apple?

Goldman Sachs is Heavily Discounting the GT’s Revenue and 2016 EPS Estimates

Goldman Sachs is estimated Apple’s sapphire business at $500m 14′, $958m 15′ and 1,039m in 16′ with approximately $1 EPS  of their $1.94 2016 estimate coming just from Apple.   Does it make any sense why Goldman Sachs values GT at only 12x 2016 earnings when more than half of the EPS estimate  is recurring in nature?  I think the bottom line is outside of TG and TC and some raving fans I don’t believe anyone in wall street believes GT can pull this cover story off.    The wall street analysts have baked in some considerable risk into their price targets because they believe GT’s lack of high volume material business experience is a significant risk to executing the project.

I don’t know exactly what Apple will cover in sapphire but I do expect them to surprise just about everyone to the upside.  I’m currently estimated Apple revenue at $1,180m 14′, $2,027m 15′ and $2,216m in 16′.  My estimated revenue includes revenue for the iPhone, iPod and the iWatch and it assumes a September 2014 launch for all 3  products.  If Apple added the iPad to the mix it would add an additional $1,400m a year in revenue by 2016.    If you add up my base estimate and as well as the iPad revenue I am modeling out GT’s revenue potential with Apple at just under $4B in annual revenue by 2016 with a future growth rate of 10% annually.  It should come as no surprise that my Apple base revenue estimate is double Goldman’s estimate. Goldman’s model does not even assume any new products get introduced with sapphire by 2016.  Their 10% growth estimate just assumes an industry unit growth estimate.  Are they naive enough to assume that this project will be mature in 2014 and will just make iPhones and that GT’s sales will nearly double in 2015 from 2014 estimates and then grow at a 10% rate annually?  Give me a break!

Goldman Sachs seems to be doing everything in their power to keep their price target low.  They are currently modeling Hyperion at $57m in revenue for 2016 along with a contribution of negative $0.03 EPS.  However, by 2018 Goldman expects Hyperion to contribute $1.58 in EPS assuming the middle of the road 60% of TAM and a gross margin of 35%.  For clarity this Goldman is assuming GT’s Hyperion sales will jump from $57m in 2016 to $2.25B in 2018.  GT’s management is expecting to receive initial orders in 2014 for delivery in 2015 that will exceed Goldman’s 2016 Hyperion estimate of $57m which is roughly 6 Hyperion tool sales.  Goldman flat-out does not want to give any credit to GT’s Hyperion opportunity and the way they modeled out 2016 they don’t even need to deal with it.  My point here is Wall Street analyst’s are not giving GT Advanced market potential market opportunity with Apple or even Hyperion much respect and it’s time they start thinking outside the box.

GT is One of a Kind!

TG knows that GT is the only company in the world that can pull off the Apple sapphire project.  How many sapphire production equipment makers are there in the world?  How many sapphire manufacturing operations are there in the world?  How many sapphire production equipment makers are also running sapphire manufacturing operations in the world?

There is just 1 company in the world that produces sapphire equipment and also runs a sapphire manufacturing operations in the entire world.  That one company is GT Advanced Technologies.  I’ve read a lot of material over the last few years related to sapphire and sapphire operations.  One of the biggest issues with producing sapphire materials is having the knowledge to run the equipment.  It can take months for ASF furnace customers to get their yield up to where they want it.  GT sapphire solution includes on site training to help with the knowledge transfer and to reduce the learning curve and help achieve the desired material yields.  The biggest issue is customers will not be able to produce the results that GT does in their labs.

You know what would be a brilliant idea if Apple selected the only company in the world that actually designs and makes the ASF furnaces and actually uses them to produce materials and has years worth of man hours under their belts testing, innovating and upgrading their ASF furnaces on an ongoing basis.  Apple gets GT’s know-how related to the ins and outs of the furnaces as well as the experience of using their best and brightest to run the sapphire operations in Mesa, AZ.  There is no other company in the world that can offer the intimate knowledge of the equipment as well as years of experience in actually growing and performing R&D on sapphire products in their lab.

Paul Beailieu GT’s Vice President of sapphire operations in 2011 summed up what gives another advantage unique to GT, GT is “the only merchant equipment provider that also operates a modern, state-of-the-art sapphire production facility.  This quote was taken from Yole Developpment’s March 2012 LED Industry Review.

Screenshot - 4_6_2014 , 9_33_53 PM

If you are wondering how GT got its name  GT Advanced Technologies the answer can be found below.  It seems clear that GT is in a league of their own with sapphire furnaces as well as developing their other equipment that they acquire (i.e. Hyperion).  The quote and image below was also taken from Yole Developpment’s March 2012 LED Industry Review.  What is more impressive about the quote and image below is that it came from the director of a rival furnace producer named Oleksandr Lavryk from Pryroda Engineering.

Before the entrance of GT Advanced Technologies, the market for sapphire equipment was a case of a ‘Market for Lemons’ as described by Nobel prizewinner George Akerlof, Lavryk told iLEd.  Akerlof’s ‘lemons’ are used cars, where for regular buyer it is notoriously difficult to assess the quality.  Good cars and lemons are sold for the same price because buyers see no difference in them.

It can be argued that one of GT’s core skills is to identity quality and potential of equipment.  GT acquires equipment with high potential, develops it further and resells it to those who lack the important skill of identifying equality of equipment.

 

Screenshot - 4_8_2014 , 10_05_53 PM

Conclusion

This article highlights why GT Advanced Technologies is one of a kind, Apple knows it, TG knows it and now every reader of this article knows it.  GT may not have the experience of delivering hundreds of millions of sapphire cover screens or ramping up a large-scale operation in just 6 months but they can do it.  They are the only company on the planet that produces sapphire growing equipment that also run a sapphire operations.

I played high school and college basketball and I had a fantastic basketball coach.  Our coach taught us and we ran John Wooden’s famous flex offense.  My coach had a great understanding of the offense, he had scouted teams that ran it and played against teams that ran the offense.  I have to believe my team would have been even more productive on offense if the legendary John Wooden was coaching us.  John Wooden ran the flex offense successfully at UCLA for years and even wrote a book on it.

Apple by signing up GT Advanced to buy and operate their ASF furnaces to grow sapphire materials for Apple has added a technological innovation legend to their bench.  GT’s equipment knowledge inside and coupled with their years of experience in the lab growing and researching sapphire will produce an astounding amount of sapphire in such a short period of time to cover most if not all of Apple’s devices in 2014.  It’s now clear to everyone why GT is One of a Kind and Apple knows it!

If you are interesting in following my tweets, asking me a question or just want to give feedback or say hello you can follow me @sapphirecover24 on Twitter.

 

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