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.
Furthermor, 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.