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Summary

  • The technology has the ability to change the dynamics of the industry.
  • Economic benefit from the opportunity will be massive for the company.
  • The technology can bring down the costs massively for a vertically integrated company.

In November 2012, GT Advanced Technologies (GTAT) placed a big bet on an unproven technology, which is about to change the fortunes of the company, along with the dynamics of the industry - the technology under discussion is the "Hyperion" - a machine developed by Twin Creeks Technologies, and later bought by GT Advanced Technologies. Twin Creeks developed the machine during its efforts to look for clean energy sources. However, the project did not succeed, and they sold the machine to GTAT at a substantially lower value than the initial investment.

First of all, let's talk about the technology. Hyperion is an ion implanter that has the ability to cut silicon, silicon carbide, sapphire, germanium and other crystalline material substrates to the thickness of 20 microns - traditional methods cut these materials at 200 microns. The process to achieve this is very simple: A thick block of silicon is put in Hyperion, which shoots hydrogen ions onto the silicon block to the depth of 20 microns, which create a bubble layer on the block. After that, the wafer is moved to the furnace and heated, where the top layer separates from the block. The process is then repeated in order to produce more layers, and the block is used again and again.

(click to enlarge)

Source: GTAT New Product & Technology Briefing

The biggest advantage of the process is the cost-efficiency - one of the biggest hurdles for the clean energy is the cost of the per watt energy generation. Hyperion can cut down that cost by about 50% for a vertically integrated company. The machine eliminates wastage, and allows the manufacturers to gain the maximum value from the materials. At the start, the only application of the machine was thought to be in solar panel manufacturing. However, its scope has been widened, and the machine can be used for other materials as well. The company has over 50 patents for the machine.

Whenever we talk about a new technology; it is extremely important to gauge the economic viability of the said technology. Hyperion might be the technology that makes a whole industry viable. At the moment, the biggest hurdle in the way of solar energy is the equipment cost. The solar panels only convert about 10%-20% of the sunlight into electricity, which means the cost of the electricity generated from the solar panels is 3-6 times more than the traditional methods. In order to reduce the costs, two things must be done: first, the reduction of the manufacturing costs, and the second is the increase in the efficiency of the solar panels. Hyperion can solve at least one issue and bring down the manufacturing costs.

Furthermore, the machine will also be used for other materials. At the moment, Sapphire is also an important component for a number of applications. However, the cost of manufacturing a sapphire structure is considerably higher than the traditional glass - Hyperion can play a vital role in reducing this cost and making it more viable for companies like Apple (NASDAQ:AAPL) and Samsung (OTC:SSNLF) to use Sapphire for the full display screen by making it cost-efficient.

Let's now look at the economic benefit to the company. Since the company holds the technology that might change the industry; the economic benefit will be huge for GT Advanced Technologies. The company is expecting initial orders in the current year and the first delivery in the next year. The machine will cost between $4-15 million, depending on the configuration and volume. By 2018, GTAT is expecting market opportunity of between 200-250 machines shipped. If we take the lower points of these estimates, we end up with additional revenue of about $800 million, and about $3.75 billion if we take the upper points of the estimates. However, we know that the orders will vary and the requirements will be different. As a result, the actual figure will fall somewhere in between those estimates. In any case, the company has the opportunity to generate between $800 million and $3 billion by the end of 2018.

The highest number in revenues reported by the company was $956 million at the end of 2012. If the things go according to the plan and the estimates are correct; GTAT might be able to surpass that from just a single segment. Even if the company is able to achieve the lower end of the estimates, we will see per share revenue of $6.7 - the per share revenue figure for company during the last year was just $2.5. It is amazing how just one segment will have such a strong impact on the revenues of the company. If we factor in the growth from other segments, especially from Sapphire, we are looking at an even bigger jump in revenues over the medium-long term.

Bottom Line

Hyperion will be a game-changer for GTAT, without a shadow of doubt. There is a lot of buzz around the company, and rightly so. GT Advanced Technologies has a technology that can change the dynamics of the industry, and in doing so, it will certainly change the fortunes of the company and its shareholders. As I mentioned in my previous article, the growth from other business segments is also expected to be strong, and the recent rise in the stock price is justified, in my opinion. I also maintain that GTAT will be a solid long-term investment and the growth opportunity for the company is massive.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Source: Hyperion: A Game-Changer For GT Advanced Technologies?