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GT Advanced Technologies, Inc. (NASDAQ:GTAT)

Q4 2013 Results Earnings Conference Call

February 24, 2014 08:00 AM ET

Executives

Bob Blair - Investor Relations

Tom Gutierrez - President and CEO

Rick Gaynor - Chief Financial Officer

Analysts

Jed Dorsheimer - Canaccord

Stephen Chin - UBS

Krish Sankar - Bank of America Merrill Lynch

Jeff Osborne - Stifel

Pavel Molchanov - Raymond James

Brandon Heiken - Credit Suisse

Nimal Vallipuram - Gilford Securities

Operator

Good day ladies and gentlemen, and welcome to the GT Advanced Technologies Q4 2013 Earnings Call. At this time all participants are in a listen-only mode. Later we’ll conduct a question-and-answer session and instructions will follow at that time. (Operator Instructions). As a reminder, this conference is being recorded. I would now turn the call over to your host Bob Blair, GT Investor Relations. Please go ahead.

Bob Blair

Thank you. As we begin, I would like to remind everyone that certain statements made during this call may be forward-looking for purposes of the Safe Harbor provisions under the Private Securities Litigation Reform of Act of 1995.

We may discuss our expectations regarding future events. In particular, these may be forward-looking statements regarding estimated future financial results for calendar 2014 and beyond, factors likely to affect financial results and other forward-looking statements regarding market conditions and factors which may affect the performance of each of our business segments.

In this connection, we direct your attention to the slide entitled Forward Looking Statements, which is the final slide in the presentation accompanying this call. Important factors that could cause actual results to be different than our expectations are discussed in GT Advanced Technologies' filings with the Securities and Exchange Commission, including the statements under the heading Risk Factors in the company's report on Form 10-Q for the quarter ended [September 28,] 2013.

Statements made during this call should be evaluated in light of these important factors. GT Advanced Technologies is under no obligation to, and expressly disclaims any such obligation to update or alter its forward-looking statements, whether as a result of new information, future events or otherwise.

A webcasted replay of today's presentation will be available for 90 days beginning later tonight and could be accessed on the IR section of our website. An audio replay will also be available through March 5th on our website. Please refer to the company's website for details. Following today's call, we will be posting a copy of our prepared remarks to our website.

And finally, during the Q&A session today. We ask you that you limit your questions to an initial question and one follow up. With that, I will now turn the call over to Tom Gutierrez, President and CEO of GT Advanced Technologies.

Tom Gutierrez

Good afternoon. With me today is Rick Gaynor, our Chief Financial Officer and Raja Bal, our Chief Accounting Officer, who will succeed Rick on March 6th as CFO of GT. After provided general business update, [Rick will] report on our Q4 and year-end financial results and I'll then conclude with the discussion of the market environment, our guidance and long range outlook.

Our results for the December were in line with our guidance and as well [not mentioned] today, the anticipated growth trajectory of our business remains unchanged for what we said last quarter. Our confidence continues to grow for a number of reasons. The markets that we are serve are showing signs of improvement. Our project in Arizona is going well. The increase in our HiCz and PV technology is picking up, our ASF customers are starting to plan expansion projects and the potential for new polysilicon technology business is growing.

During the last year we worked to ensure that our balance sheet continues to provide us with the strategic and operational flexibility necessary to take advantage of the many growth opportunities that we have identified. Accordingly we completed a convertible and common stock offering that raised approximately $290 million net of fees. We used $96 million of our cash balance to retire our term loan in the fourth quarter.

In addition we received two of four prepayments due from Apple under our multi-year agreement. The first of these was received in December and as reflected in our year-end results, as was the effect of deploying over $180 million of PP&E mostly in Arizona during the fourth quarter. The second prepayment was received during the fourth quarter.

We are very pleased to have Apple as a sapphire customer and to be in a position to leverage our proprietary knowhow to enable the supply of this versatile material to them. While our primary focus during the balance of the year is to continue to execute on our commitments in Arizona, our aim is to position GT not only as an exceptional sapphire supplier to Apple, but also as an unparallel world class supplier of sapphire material and equipment for a variety of other customers.

As strong as our sapphire opportunities maybe, the GT story is not just about our emerging sapphire business. In fact, our entry into the sapphire materials business may enable us to expand into other material segments whilst we have fully ramped the operation in Arizona. In addition, many of the diversification and investment fees that we have planted over the last several years in the LED, power electronics advanced solar and industrial markets are expected to begin to bear fruits over the next 18 months. We are already supplying ultrathin silicon wafers exfoliated using our Hyperion tool to a better customer in Asia and our commercialization plans for Hyperion, silicon carbide HVPE, PVB and HiCz and new polysilicon products remain on track. We're seeing significant interest in these 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.

Given the importance of these new products and the limited time we have today, we have decided to hold a webcast of New Product and Technology Briefing on Friday March 14 that will focus exclusively on these key initiatives to grow our equipment business. We look forward to updating you then on these exciting opportunities.

With that, I'll turn the call over to Rick Gaynor to provide a summary of our Q4 and calendar year 2013 results, before I return to provide our guidance and outlook. Rick?

Rick Gaynor

Thanks Tom and good morning everyone. Before I provide details on our December quarter and full year 2013 performance, I would like to note that a full reconciliation of the GAAP and non-GAAP financial measures that we will be discussing today are included in our press release and in the presentation accompanying this call, both of which can be found on our website.

I want to remind investors of the strategic decision we made during 2013 to enter the Sapphire materials business and forego ASF equipment sales while building out our sapphire materials capacity. This decision has and will have, a clear negative impact on our near term results and is reflected in the fourth quarter and 2013 results, I'm about to review.

During the fourth quarter of 2013, we recorded total revenues of $33 million, which included approximately $19 million of sapphire segment revenue and combined total solar revenue of approximately $14 million for our poly and PV product segments. Total revenues for the year were approximately $299 million of which $220 million was from our poly business $48 million was from our sapphire business and $31 million was from our PV business.

Moving on to gross margin. During Q4 consolidated non-GAAP gross margin was 20%. PV non-GAAP gross margin 57% which reflects our success and continuing to sell our DSS inventory into the market, while polysilicon non-GAAP gross margin was 4% as a result of under absorption associated with minimal sales activity during the quarter. Overall, gross margin was negatively impacted by the build out of additional capacity related to our sapphire materials ramp. On a full year basis, our combined non-GAAP gross margin was approximately 33%.

During Q4 non-GAAP OpEx was $43 million, the $4 million non-cash charge related to the write-off of certain equipment primarily in our Salem facility. The write-off in Salem relates to our decision to upgrade operations to the same advanced technology being deployed in our Arizona build out. For the full year non-GAAP OpEx was $141 million.

Non-GAAP R&D expense in Q4 was $23 million, up from Q3. Non-GAAP R&D expense for the full year was $77 million a 12% increase from prior year reflected our continued commitment to new technology development efforts.

Moving on to EPS, Q4 resulted in a fully diluted non-GAAP loss per share of $0.26. For the year our non-GAAP loss per share was $0.35. This was an improvement over the guidance we provided last quarter.

Moving on to our balance sheet. We ended the year with approximately $593 million of cash and cash equivalents and restricted cash up from $418 million at the beginning of the year. The increase in our cash balance was primarily due to a series of transactions we entered into during the quarter.

Under the agreement with Apple, we are scheduled to receive total prepayments in the amount of $578 million. As of the end of December, we had received the total of $225 million of those prepayments. The company also raised $300 million in concurrent common stock and convertible debt offerings in December. The net proceeds raised were approximately $290 million of which $206 million related to the convertible debt and the remainder to the issuance of approximately 10 million shares of the company’s common stock at a share price of $8.65. We also paid off our outstanding term loan of $96 million in October and deployed over 180 million of PP&E during the quarter, primarily related to our investment in Arizona.

At the end of the year, we had 284 million of balance sheet debt, which consists of the fair value of vertical notes due in 2017 and 2020. In addition, we recorded $170 million obligation related to the prepayment we received from Apple. We expect that the combination of Apple prepayments received to-date and to be received in the future will fully fund the capital outlay in Arizona.

Before moving into bookings and backlogs for the quarter and year, it is important to note that going forward, we will only be reporting backlog related to equipment orders. Any open orders to sapphire material whether they be for our Salem or Arizona facilities, have been excluded from backlog this quarter and we will continue to be excluding them as we go forward.

Accordingly, equipment orders in the fourth quarter were $24 million which included $21 million for solar equipment and $3 million for sapphire equipment. As noted during our last earnings call, after the close of third quarter during Q4, we modified an arrangement with an ASF customer which had a net effect of reducing reported backlog by approximately $45 million.

As of December 2013, our ending backlog was $602 million which included $299 million of polysilicon, $11 million of PV and $292 million of sapphire equipment. Again, these ending backlog amounts represent equipment orders only. Our total reported backlog security as of the end of December quarter was 28% with $63 million in deferred revenue, $12 million in letters of credit and $93 million in non-refundable customer deposits.

In my final call as CFO of GT, I want to state that I greatly value my four years of experience and relationships with the company, including relationships with many of you in the investment community. Most importantly, I want to extend special thank you to my fellow employees for their great teamwork and building an outstanding company with such great promise.

I will now turn the call back to Tom for a discussion of our current guidance and longer term outlook. Tom?

Tom Gutierrez

Thanks, Rick. Before discussing our guidance and overall outlook for 2014 and beyond, I’d like to provide some background on key developments in the markets that we currently serve. As we expected, the supply demand dynamics in the LED and solar markets are beginning to show signs of recovery.

We continue to be encouraged by recent developments in the LED sector, where we provide sapphire growth solutions and are targeting our HVPE and PVD equipment offerings. Our ASF customers are running at high utilization rates and they are seeing prices trend upwards as demand increases for traditional LED applications.

Demand from new applications outside of the LED sector are adding volume and impacting supply-demand dynamics in the industry in a positive way. The solar industry continues to be challenged but we are beginning to see what we believe is the start of a new investment cycle as Tier 1 solar companies are reporting positive margins and the potential for new capital investment growth. End market demand which has continued to grow on the back of low prices is also improving. In fact according to recent Solarbuzz forecast, the most likely estimate for demand in 2013 is 36 gigawatts and in 2014 demand is expected to grow to approximately 49 gigawatts. Reflecting these projections and the positive financial performance of some of the key players, the PV sector is showing signs of improvement and we continue to have success in converting our inventory of DSS furnaces to cash.

Customers are now indicating an interest in larger size multicrystalline ingots. Accordingly, we are targeting the release of next generation DSS technology in 2015. The polysilicon landscape is also changing. Driven by changes in the tariff structures, closures of uneconomical supply, and end market growth, polysilicon prices have started to improve and the need for new low cost capacity is becoming more apparent. In fact, one of our key customers in Asia recently announced that they are restarting their capacity expansion plans in order to meet the expected demand. In addition, our opportunities in the Middle East continue to solidify and we remain well positioned on several projects of substantial size.

While solar is not expected to contribute meaningfully to revenues over the next year, it remains an important part of our portfolio. However, we continue to believe that for the solar industry to fully reach its potential, cost must come down dramatically. To this end, we have a deployed a new technology that we expect will significantly impact the economics of producing solar cells and modules. This technology was developed and comes out of a research operation we established in the Bay Area over a year ago to focus on advancing the state of the art and the design and assembly of solar cells and modules. We look forward to talking with you about this development on our March ‘14 webcast.

With that as background, I’ll move on to guidance. We expect that 2014 will be a transformational year for GT, a year in which we build a sapphire materials business while continuing to invest in the new technologies that will drive our equipment revenues in 2015 and beyond.

We expect that our revenue and profitability will be very back end loaded this year given that our sapphire materials business will be in ramp up mode. As we indicated on our last call, we expect revenues in 2014 to range from $600 million to $800 million, with approximately 15% of the total revenues occurring in the first half of the year. We expect our sapphire segment to account for more than 80% of total revenue in 2014. The sapphire segment includes the company’s ASF equipment and materials businesses in the LED, industrial and consumer electronics markets.

During the first quarter of 2014, we expect to generate total revenues in the range of $20 million to $30 million and a non-GAAP loss per share of $0.20 to $0.25. Consolidated gross margins for 2014 are expected to be in the range of 25% to 27%, reflecting lower margin material shipments during the year, inefficiencies related to the ramp up of the sapphire business and underutilization of our equipment operations.

Our headcount will continue to grow through the early part of the year and reach a milestone for GT at over 1,000 employees by midyear, up 85% from employment levels of approximately 541 at the end of December 2013. All of the employment growth will be in U.S.

We expect 2014 non-GAAP operating expense to be approximately $140 million to $160 million and CapEx to be approximately $500 million to $600 million for the year. CapEx will be heavily weighted towards the first half of the year. Our cash balance at year-end is expected to be in the range of $400 million to $500 million. We estimate that our effective tax rate will be approximately 40% on an annualized basis. Given our net operating loss carry forwards, we expect cash taxes to be nominal in 2014 and 2015.

We expect 2014 non-GAAP earnings per share in the range of $0.02 to $0.18. This assumes an average outstanding share count of 148 million shares. We expect to return to profitability during the second half of 2014. Although, it’s not the norm for us to provide guidance beyond the current year, at this time we believe that given some visibility into 2015 and 2016, we can help shape appropriate expectations as we move through this period of transformation. We believe that our revenues in 2015 will exceed $1 billion and profits will sequentially improve. While there are many variables that can influence our profitability such as tax rate, share count and market conditions and product and geographic mix, we are increasing our target non-GAAP EPS for 2016 to be at or above a $1.50 per share as we benefit from the evolution of our equipment business and build upon our base of recurring materials revenue.

Lastly, given that this is Rick’s last earnings call with GT. I want to acknowledge the significant contribution he has made over the last several years. On behalf of the Board of Directors and all of our employees, I want to thank him for his dedicated service and wish him the very best in his new venture. We’re grateful to have a capable Finance Executive like Raja Bal to succeed Rick at this exciting time for the company. And I look forward to introducing you to Raja in the weeks and months ahead.

Before we go into Q&A, I want to say that we appreciate the significant interest level on the part of investors and analysts to understand our build out in Arizona. As I noted last quarter, we are not in a position to give extensive information about this project. We are Harbor committed to keeping our investors as informed as possible within the bounds of our confidentiality obligations.

Operator we are now ready to open the call for questions.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions). Our first question comes from Jed Dorsheimer from Canaccord. Your line is open.

Jed Dorsheimer - Canaccord

Hey, thanks.

Tom Gutierrez

Good morning Jed.

Jed Dorsheimer - Canaccord

Good morning. Just a couple of questions, just a PP&E jump to 100 -- by $144 million, I assume that furnace is going into Arizona, is that correct?

Tom Gutierrez

It’s a $180 million of PP&E and it is capital that we've deployed primarily in Arizona, but we’re not giving details on what the breakdown of that [CapEx] is.

Jed Dorsheimer - Canaccord

Okay. Fair enough. Did we look to the guidance this year, very -- it’s the speed back-end loaded year for you? Would we expect to see you book material sales in the June quarter, I know you’re just guiding for March, but just trying to get a better [handle on] how do you look there?

Tom Gutierrez

Well I think the guidance is 15% of the revenues further [bounce] will be in the first half of the year. And as I indicated, orders for our new equipment offerings, which is really significant interest involved, really start to take off into the second half of the year. But as you know, revenue recognition on new technology takes some time. So there will be fairly little impact from those new equipment classes in the year.

However, we still have ASF furnaces in our backlog. We have our polysilicon business. We have DSS sales that we anticipate that will drive some meaningful equipment revenues in the back half of the year. But we’re naturally going to project exactly when those orders will roll in.

Jed Dorsheimer - Canaccord

Okay. And then maybe just if you could speak to, I know we’ve got Mobile World Congress this week, a couple of LED trade shows as well. Just curious in terms of sapphire, as we start hearing more about the benefits of sapphire cover glass. We’re hearing in particular this, the obvious scratch resistance and the harder material benefits. But I was wondering if you could talk about some of the other attributes, in particular sort of hearing that the dielectric nature of sapphire has some other benefits to cuts in hand that industry. Could you comment on the technology in general and why maybe some OEMs might be interested in this technology?

Tom Gutierrez

Jed, I am going to stick to my historical comments on the subject. Obviously I’ve spoken extensively about the fracture resistance and scratch resistance and I have noted that the dielectric properties of sapphire have some value. But beyond that I’d rather not delve into some of the additional properties as they are not in the public domain.

Jed Dorsheimer - Canaccord

Fair enough, I understand. Then regarding your relationship with Kyma in the HVPE, I read the press release in the relationship to look like equipment for that market. Do you see a similar parallel to the way in which things have gone in sapphire where you started with the equipments and then ended up in the materials as well for solid gallium nitride or is this specifically for equipment there?

Tom Gutierrez

Well I think initially and for sure I mean this is an equipment play for us. However, we expect that we are going to have to deliver a reasonable amount of sapphire wafers with the aluminum nitride layering as our potential customers basically prove out the process. We always evaluate our strategic options going forward and so it’s not 100% out of the question that we may play on the material side of it if we have customers that don’t want to make the investment in the equipment themselves. But at this stage in the game, we are thinking of it more as an equipment play than as a materials play in combination with our HVPE.

Jed Dorsheimer - Canaccord

I will jump back in the queue; look forward to seeing you later this week. And Rick, it’s been a pleasure working with you over the years. Thanks.

Rick Gaynor

Thank you, Jed.

Tom Gutierrez

Thanks Jed.

Operator

Our next question comes from Stephen Chin with UBS. Your line is open.

Tom Gutierrez

Good morning Stephen.

Stephen Chin - UBS

Thanks. Hi, Tom and Rick. Hi, good morning and thanks for the update Tom on that Arizona fab. My first question is about the 2014 gross margin guidance of the 24% to 27%, Tom. Can we estimate that the sapphire materials business will be in our operating margin profitable in the second half of the year? We have good confidence that top-line for sapphire demand looks strong, I was just hoping you can share with us some or what gives you confidence you can successfully generate a profit in this business of selling sapphire materials?

Tom Gutierrez

Well, I'm going to breakdown sapphire materials profitability versus the entire sapphire segment. We expect our sapphire segment to be profitable in the year on balance. 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.

Stephen Chin - UBS

Okay. And maybe my second question just a follow-up on the 2014 sales likely being 80% from the sapphire segment. Can you share any color of how to think about modeling, the breakout between sapphire materials and LED equipment sales in the second half of the year?

Tom Gutierrez

No. It’s not -- it’s exactly the kind of detail that we really are not in a position to provide, Stephen. And I understand that that makes a little bit of [point] for you, but I think by giving you the gross margin of the entire segment and if I could it is comprised of equipment and materials that will give you some guide post to work with.

Stephen Chin - UBS

Okay. Because I mean, we know it’s your high-end of the revenue is $800 million and 80% is from the sapphire segment if we look at the $640 million that could come from the sapphire segment, even your LED equipment backlog is about $300 million. So I guess is it fair to assume, a very minimum cases for sapphire materials will be the rest so that would be about $340 million from sapphire materials. If you hit the high-end of your guidance and you happen to ship all of your LED equipment -- I mean it’s just the way the math works so it does seem like a large number?

Tom Gutierrez

All right. I can acknowledge that I heard what you just said, but I can’t provide any validation.

Stephen Chin - UBS

Okay. I understand. Thanks Tom. I appreciate it.

Tom Gutierrez

Okay.

Operator

Our next question comes from Krish Sankar with Bank of America Merrill Lynch. Your line is open.

Krish Sankar - Bank of America Merrill Lynch

Yeah. Thanks for taking my question. And congrats Rick again for a job well done at GT here. Couple of questions, Tom I understand you don’t want to split the breakdown between equipment and consumables material for sapphire, but I am just wondering is it fair to assume all the 80% of your full year revenue coming from sapphire is going to be your heat exchange technology?

Tom Gutierrez

We are focused and driving our ASF technology, we've confirmed that that is the primary technology we’re taking to the market, yes.

Krish Sankar - Bank of America Merrill Lynch

Got it. And then just a follow-up in the long term guidance that you guys gave really helpful, I didn’t notice that you spoke about $1.15 earnings in 2016 and I remember the last call you guys mentioned that 2016 revenues would be double of 2014, so is this fair to assume that target is still intact?

Tom Gutierrez

We didn’t comment on the revenue, this time around. But as is obvious our confidence level in the bottom line has grown, as we've gotten feedback on our equipment businesses, and our new offerings and the new solar technology that we’re going to be introducing here in the middle of March, which we’re very excited about. And so I can’t give you any additional revenue color, other than to just reassert that yes we feel very comfortable on that bottom line being equal to or greater than $1.50.

Krish Sankar - Bank of America Merrill Lynch

Got it. That's very helpful. Then just a final question, the other 20% of the mix for this year, coming from the solar side of the market, is it fair to assume that by the back half it should be heavily weighted towards the poly business versus PV?

Tom Gutierrez

We’re not providing that level of granularity, but it’s not just solar, there are other elements in that 20%, other than solar and it is a combination of PV, poly and some other technologies that we’re taking the market share.

Rick Gaynor

I have just one clarification Chris and Steven made the same comment when you said 80%, our actual guidance was greater than 80%, you figure out where that number is, but it’s not -- 80% was not the actual number.

Krish Sankar - Bank of America Merrill Lynch

Got it. Thanks Rick, thanks Tom.

Tom Gutierrez

Welcome.

Operator

Our next question comes from Jeff Osborne with Stifel. Your line is open.

Jeff Osborne - Stifel

Good morning, just a quick question. I might have missed this. From the first half of the year, Tom I was wondering if you could update us on what you think the gross margin and OpEx trajectory is, I am just trying to get a sense of, should OpEx in the headcount ramp up with that revenue ramp or is there a need for substantial hiring ahead of that in terms of training and whatnot and then would you have the under utilization penalty that you have called out this quarter as well?

Tom Gutierrez

Well, what I will say is, we made a comment about the impact of moving into the materials business had on 2013. That affect does continue to impact us through the first half of the year, because we are not following sapphire equipment and [cliff] that we would have otherwise been doing. There is some front loadings to the headcount and there is some front loading definitely to the CapEx onto the expenses, but beyond that we are really not providing much more granularity I think giving you the idea that it is only 15% or thereabout from our revenue front that the first quarter just given you a range for the first quarter that pretty well puts it in the box.

Rick Gaynor

Now you can back into Q2 revenue number for the data that we provided Jeff, and as Tom said.

Jeff Osborne - Stifel

I got Rick, I was just trying to give the sense of the OpEx trajectory, the cadence through the year, but that’s fine, if you don’t want to answer, just going from 500 out people do 1,000, a pretty substantial ramp.

Just changing topics on the second question. Can you just discuss the, you mention the exfoliation wafer for an Asian customer, I assume that’s on the mobile side, but can you just touch on where the Hyperion product line is, I am sure you will update that on the [14th] but more importantly I guess where I am going with the question is how critical is that to hit the materials revenue ramp for 2014?

Tom Gutierrez

The exfoliation application that I spoke of as silicon and so it’s for solar cells. I mean as you know when we acquired Twin Creeks they had already pretty well perfected the exfoliation of silicon wafers and so we are now mining that with a (inaudible) customers who is interesting in using the thin silicon wafer to manufacture solar cells. So that’s the application. We have mode very substantial progress with our Hyperion technology in terms of exfoliating a variety of different materials, but Hyperion is not expected to be a significant contributor to our revenue or our profitability in 2014.

Jeff Osborne - Stifel

Do you have just to that point in for ’16, the improvement in EPS is that part of the story there, is just you would b adding more value than sort of just making ASF pools Hyperion would come in at that point is that the right time to thinking of commercialization there?

Tom Gutierrez

I think you are making a connection there between Hyperion and the Arizona project. And that’s not necessarily a good connection. Hyperion has an incredible number of applications outside of that area and the growth in Hyperion is dominated by those other applications in our projection through 2016.

Jeff Osborne - Stifel

Understand, thank you.

Operator

Our next question comes from Pavel Molchanov from Raymond James. Your line is open.

Pavel Molchanov - Raymond James

Hey guys, thanks very much. So, I want to talk about sapphire, let me ask about the backdrop in the solar space. As you know, another trait case in Washington against China, some WTO action against India and I guess the question is for your legacy and potential future customers in Asia. What are they thinking about these events in the background?

Tom Gutierrez

For other reasons Pavel, I’ve always said that the end game’s got to be to take cost out because none of this would be relevant, the cost of solar cells were half what they are today on a manufactured basis. Because what’s happening is that people are focused on making it economical in the end market and the manufacturing costs to deliver the product are capable of doing that profitably. And so the end game is not about WTO actions or about tariffs. The tariffs that have been put in place today haven’t damaged anybody, perhaps, other than U.S. polysilicon exports that have been severely damaged as a result of the barriers that we’ve put in place and that the retribution that we’ve gotten for that. But I think the way I look at it is, this is all noise and chatter, and the future that I see in 2015, 2016, the cost goes down really substantially and all this goes away. And that’s what…

Pavel Molchanov - Raymond James

Okay.

Tom Gutierrez

And think that technology that we’re about to bring to bear will be an element of that as well as our advancements in HiCz and next generation DSS. But I think people got to keep their eye on the ball and the ball is cost, it’s not political games back and forth between the different entities.

Pavel Molchanov - Raymond James

Okay. And then looking at the guidance on the cash balance, so if you’re starting with 593 of cash currently and you’re going to be between 400 and 500 by the end of the year, obviously some cash usage, do you expect to be generating net cash in any quarter of 2014 or is it going to be fairly linear?

Rick Gaynor

I think the way to think about it is if we started the year with that $593 million, we are expecting to get the balance of our prepayments from the Apple agreement; we’ve told you the total is 578, we’ve also told you we have 225 then by the end of the year. So there is another $350 million to come from that and we’ve also said that we expect to deploy some $550 million in terms of investment into the Arizona facility. So if you use those as the big moving pieces, then you’ll see that we will expect to have some additional cash from operations being generated during the year and how much you decide within that range of $400 million to $500 million conclusion at the end of the year.

Pavel Molchanov - Raymond James

Okay, beautiful. Appreciate it.

Operator

Our next question comes from Brandon Heiken with Credit Suisse. Your line is open.

Tom Gutierrez

Good morning.

Brandon Heiken - Credit Suisse

Thanks for taking the question and congrats Rick on your work at GT and the pleasure to work with you.

Rick Gaynor

Thank you.

Brandon Heiken - Credit Suisse

So it sounds like from the press release, from the prepared remarks that you have some optimism on orders picking up in the second half. And could you clarify, maybe you may have already addressed this, but I just wanted to clarify in which divisions you expect the most resurgence in orders in the second half and did hear also correctly that sapphire would still be the dominant factor in results next year?

Rick Gaynor

I didn’t say anything about sapphire next year.

Brandon Heiken - Credit Suisse

Okay.

Rick Gaynor

In terms of what contribution it would, I think the order flow falls into a couple of categories; one of them is the new products. We have five or six major new technologies being introduced this year into the LED downstream and to solar, as I’ve indicated, and so we believe that that’s going to generate some significant order flow in the second half for the year with revenues then accruing in 2016.

I think the other aspect of it is, we do see some potential for Polysilicon order flow. And that’s normally long delivery type business, but it does generate cash because of deposits and it does generate long term stability. And we continue to have incredible success selling our DSS technology even in this market.

So that’s really where the order flow comes from. But I think new products in poly probably dominate the thing. And then from a manifest standpoint, I mean our focus is really delivering the backlog.

Brandon Heiken - Credit Suisse

Okay. So most likely ASF would probably be delivering from backlog rather than seeing a resurgence in orders later this year?

Tom Gutierrez

I think there are lots of applications for ASF from which we are -- we still have access to. And so, we do expect there to be more ASF orders. But I think the year will be dominated more by deliveries from backlog customers that are now running at very high utilization levels than new orders. But with the crunch on supply of sapphire that I expect to see happen, I would expect that you will see more people and prices resurging, I think you’ll see more people stepping in. I just think that the new products in the poly will dominate.

Brandon Heiken - Credit Suisse

Yeah, okay. And is it reasonable to assume that gross margins next year should be stronger the mix of equipment increases?

Tom Gutierrez

Not providing that granularity at the moment.

Brandon Heiken - Credit Suisse

Okay. Thank you.

Operator

(Operator Instructions). Our next question comes from Nimal Vallipuram with Gilford Securities. Your line is open.

Nimal Vallipuram - Gilford Securities

Hey, good morning and thank you for your time. Again Rick, wish you all the best with your new venture and it has been a great pleasure working with you for many years.

Rick Gaynor

Thanks a lot. I appreciate that. Thank you.

Nimal Vallipuram - Gilford Securities

There are few questions here Tom and Rick. Number one is that, Tom you have said in the past that a new -- I mean the next wave of investment in solar will come from newer technologies and you have maintained this very steadfastly for the last couple of years or so. But when I hear your comments today that there has been -- I mean not much said about the HiCz technology with the higher conversion of your (inaudible) for the solar panels. When you talk about new orders coming in for solar starting in 2015, would that be part of the new orders or is something else going on?

Tom Gutierrez

Well, I am going to speak of poly, I spoke about the end market improving, but in poly it’s our pattern to take new reactor technology at almost every cycle. And so we would expect to take our next generation poly reactor, so that is new technology lower cost per kilogram performed HiCz as it goes into the market that’s new technology as well leading to my module which has been cost that will go down in the long-term.

And then this new technology that I know I am being a little bit mysterious about, but within a few weeks here we will able to talk about it more extensively. That’s going to be a very exciting development in terms of the potential to drive cost down. And that’s really where the majority of the revenues come. I think ASF technology we are positive enough to introduce next generation technology in 2015, but that’s not going to be the major driver.

Nimal Vallipuram - Gilford Securities

Just to follow-up on that, given that right now on an average we have solar panels doing about 17% conversion efficiency, with these new technologies for GTAT and for their customers couple of years down the road would this number be anywhere say close to 22, 23 or you are probably not going to comment on that, I am just curious to know?

Tom Gutierrez

Well, you asked the question and you answered it. I would expect efficiencies to continue to improve, but I am not wise enough at the moment to put a number on it. There is too many different cell technologies under development that are going to drive what the influence is going to look like.

Rick Gaynor

I think our approach to help and solve this problem will be revealed on the new product and technology day on March 14th. So I would suggest you to tune in.

Nimal Vallipuram - Gilford Securities

Okay. Thank you. I guess a final question; with all these new fundamental basic technologies GTAT seems to be finding quite a lot of new markets rather successfully and hopefully than we’ve gone out to be the way you expect them to next few years. Does it mean that GTAT needs to build up their senior management capacity to be able to deal with all these new markets or do you have inappropriate bench to be able to deal with these in next many years?

Tom Gutierrez

No, I think as the company grows and broadened, we'll continue to add to the executive team and certainly the size of these opportunities is going to move us from that direction. And so, I wouldn't be so silly as to think that we've got all of the bench thing that we need. We need to add to our bench and we will be.

Nimal Vallipuram - Gilford Securities

Alright, thank you gentlemen. Thanks a lot.

Tom Gutierrez

Okay. Well, thank you everybody for joining us today. And I look forward to seeing or talking to you again on March 14th. Excellent questions and I appreciate the continued support. Thank you.

Operator

Thank you. Ladies and gentlemen that does conclude today's conference. You may all disconnect and have a wonderful day.

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