GT Advanced Technologies (GTAT) acquired Twin Creeks Technologies on November 14, 2012. GT's purchase of Twin Creeks was primarily focused on Hyperion, an ion implanter technology that enables the production of lower cost thin substrates with minimal material (kerf) loss. Hyperion was primarily developed to cut the cost of solar cells in half, but GT saw Hyperion as a technology that could be used for several applications and industries, including sapphire, silicon, SiC (silicon carbide) to support consumer electronics, solar, and power electronic markets. GT's press release in 2012 indicated that they expected to "pursue the development of thin sapphire laminates for use in applications such as cover and touch screen devices." The Hyperion ion implanter and its patented technology have the potential to minimize, or, in some cases, eliminate, the need for wafering saws, which could significantly lower the cost of producing sapphire laminates, otherwise known as ultrathin layers of sapphire.
GT's most recent patent application, which was published on May 15, 2014, provides evidence that GT is now capable of producing thin sapphire laminates for use in mobile electronic devices. The patent defines mobile electronic devices as "media players, mobile telephones (cell phones), personal data assistants (PDAs), pagers, and laptop computers and notebooks." The patent also exposes some new benefits of sapphire laminates that may not be widely known, including improving the signal strength of the touchscreen sensor relative to a standard touchscreen device, allowing improved sensitivity and accuracy, and/or reducing the power consumption in the touch sensor. A sapphire cover plate can be affixed to nearly any type of surface, including rigid or flexible surfaces, as well as flat or curved surfaces. Additionally, a sapphire cover plate can be positioned on top of a display and be sold as an after-market sapphire laminate screen protector, which can be removed later if desired. GT's sapphire cover plates can be produced in three distinct composite forms: free-standing sapphire multilayer composite, multilayer sapphire-glass composite and multilayer sapphire-polymeric material composite.
GT's sapphire laminates composite solutions will also create new market opportunities outside of mobile devices including the point-of-sale scanner market. One of the largest barriers to entry has been the price of a pure sapphire as well as the availability of sapphire material. GT's sapphire laminate composite solutions can be created as a price point that is very competitive to today's solutions and offer additional benefits that make them the superior option of choice by big box retailers and grocery stores around the globe. Additionally, GT's ability to exfoliate sapphire laminates into layers that are less than 15 microns thick will significantly increase the number of units produced from a sapphire boule compared to the pure sapphire cover screens that are currently being made for Apple's iPhone 6.
The "Problem" With Today's Cover Screens
GT's patent also outlines the shortcomings of today's cover-screen options. One of the main issues facing today's cover screens is damage by "abrasions that scratch and pit the physical user interface, and these imperfections can act as stress concentration sites, making the screen and/or underlying components more susceptible to fracture in the event of mechanical or physical shock. Additionally, oil from the user's skin or other debris can coat the surface and may further facilitate the degradation of the device. Such abrasion and chemical action can cause a reduction in the visual clarity of the underlying electronic display components, thus potentially impeding the use and enjoyment of the device and limiting its lifetime."
One way to improve cover-screen durability is by using "polymeric coatings or layers that can be applied to the touchscreen surface in order to provide a barrier against degradation. However, such layers can interfere with the visual clarity of the underlying electronic display as well as interfere with the touchscreen sensitivity. Furthermore, as the coating materials are often also soft, they can themselves become easily damaged, requiring periodic replacement or limiting the lifetime of the device."
Another common cover screen option uses a "layer of chemically-strengthened alkali aluminosilicate glass, with potassium ions replacing sodium ions for enhanced hardness, such as the material referred to as 'gorilla glass' available from Corning. However, even this type of glass can be scratched by many harder materials and further, as a glass, is prone to brittle failure or shattering."
GT believes that "while materials are available which can enable the display of a mobile electronic device to be relatively resistant to damage, there remains a need in the industry for materials and methods for providing improved mechanical toughness and scratch resistance without reducing transmittance."
A "Super Super Thin" and Tough Sapphire Cover Plate
Through the use of GT's patented Hyperion technology, specifically, Hyperion's ion implantation/exfoliation method, GT was able to produce an ultrathin sapphire layer, or lamina. The ultrathin sapphire layers are expected to have a thickness of less than 50 microns or even less than 15 microns. Keep in mind that 15 microns thick would be nearly 1/12th the thickness of the sapphire home button on Apple's iPhone 5s, which measures 170 microns thick. GT's sapphire cover plates can be produced in three distinct forms: free-standing sapphire multilayer composite, multilayer sapphire-glass composite, and a multilayer sapphire-polymeric material composite.
GT's sapphire cover plate can be in the form of a free-standing sapphire multilayer composite that is composed of sapphire layers only. This form of sapphire cover plates can have a thickness of less than 5 mm or even just 3 mm, depending on the size of the display region, as well as on the size and shape of the display surface on the device. A free-standing sapphire multilayer composite cover plate would be composed of between 2 and 10 layers of sapphire, with each layer having a thickness of less than 50 microns.
GT's sapphire cover plate can be in the form of a multilayer sapphire-glass composite that is formed by attaching a sapphire layer to the front and back of a transparent glass subsurface layer. The subsurface glass layer could be made from various types of glass, including soda-lime, borosilicate, or aluminosilicate glass, which also includes chemically strengthened alkali aluminosilicate glass ("gorilla glass") (NYSE:GLW). The mutlilayer composite sapphire cover plate would retain the surface characteristics of sapphire, including hardness and scratch resistance. The subsurface layers that work with the multilayer composite sapphire cover plate are expected to have a thickness of between 0.2 and 1.0 mm. A sapphire-glass composite structure will result in enhanced shatter and scratch resistance by the addition of sapphire layers.
GT's sapphire cover plate can be in the form of a multilayer sapphire-polymeric composite composed of polycarbonate or polymethacrylate. The multilayer composite sapphire cover plate would retain the surface characteristics of sapphire, including hardness and scratch resistance. A sapphire-polymeric material composite will result in improved resistance to mechanical damage, including cracking, if the material is flexed or bent to fit a curved surface.
Capacitive Touchscreens and Transparent Conducting Oxide (TCO)
I'm sure you have tried to touch your cell phone while wearing gloves and realized that your phone does not respond. The reason for this is because the touchscreen on your mobile device is a capacitive touchscreen, and the human body is actually an electrical conductor. When your finger touches the surface of your smartphone screen, it results in a distortion of the screen's electrostatic field, measurable as a change in capacitance. Apple (NASDAQ:AAPL) adopted "in-cell" technology in 2012, which eliminates a layer of capacitors and builds them inside the display. Additional benefits of "in cell" technology include thinner devices, improved display clarity due to fewer layers, and improved touch response.
Sapphire is a very unique material that is currently known for its toughness and scratch resistance. One additional advantage that is also fairly well known is that sapphire has dielectric properties; what is not widely known, however, is that these dielectric properties of sapphire can significantly improve a user's experience with the touchscreen of a mobile electronic device. Apple's adoption of the "in-cell" technology in 2012 allowed it to remove one layer from the display, and thus also one step in the assembly, of the iPhone 5, which provided significant user-experience improvements such as those mentioned above. Typically, a capacitive touchscreen structure consists of two layers of transparent conducting oxide , often separated by a dielectric layer. GT's patent would enable the TCO/thin dielectric/TCO structure to be moved to the front of the subsurface layer and be covered by a sapphire layer. A sapphire layer covering a TCO layer on top of a transparent subsurface layer would offer an increase in signal strength for the touch sensor, as well as provide a simpler fabrication process, since there is no need for a deposited dielectric layer. Additionally, this modification would also increase the signal strength of the touchscreen sensor relative to a standard touchscreen device, allowing improved sensitivity, accuracy, and/or reduced power consumption in the touch sensor.
Apple is focused on the durability of its screen as well as the overall user experience. Apple's partnership with GT Advanced sapphire solutions will not only increase the durability of its devices but also enhance the user experience. Sapphire is not only an optically pure solution compared to the current cover screen materials available, but it also allows the device to be thinner by substituting a thicker substrate layer with an ultrathin layer of sapphire. The advent of sapphire Apple's device assembly will result in a significantly better touch screen as well as reducing the power consumption in the touch sensor itself.
Sapphire Laminate Solutions are "Not Covered" by GT's Exclusivity with Apple
During GT's Q1 2014 conference call, Pacific Crest Securities analyst Weston Twigg asked GTAT's CEO Tom Gutierrez a few questions that made it a bit more clear as to what is "covered" in GT's exclusivity with Apple and what is "not covered".:
Weston Twigg: Do you have the same exclusivity restrictions around sapphire related to your Hyperion technology that you would on the ASF technology?
Tom Gutierrez: We do not. But I mean, I would be insane not to offer it to my existing customers.
Weston Twigg: Okay, but would the sapphire itself have the same restrictions if you treat it downstream coming out of a furnace?
Tom Guiterrez: No. I don't have those restrictions with respect to Hyperion sapphire.
Additionally, GTAT's CEO also made some interesting comments on the various sapphire applications as well as how "very, very optimistic" he is to deploy sapphire in various forms and applications outside of Apple.
There are applications where due to the size or other constraints and alternative solution might be useful. Therefore, our objective is to have a range of solutions that start from inexpensive scratch only production, all the way up through full properties, both sapphire being available to the user. In addition, I see coatings at one extreme. I see glass sapphire composites at another point in the continuum. I see plastics in there as part of the continuum. Then ultimately, the pinnacle of the best of the best is pure sapphire.
I'm also very, very optimistic about our efforts to deploy sapphire in many different forms and to take advantage of what we think is the bulk materials key characteristics in a variety of different applications.
-Tom Guiterrez (Seeking Alpha GTAT 2014 Q1 Transcript)
GT's Sapphire Laminate Solutions: Benefits and Target Market
GTAT's ultrathin sapphire layers will allow for fabrication improvements of the capacitive touchscreen, especially for devices that adopt "in-cell" display technology, e.g., Apple. The fabrication improvements that are enabled by the use of ultrathin sapphire layers will result in an increase the signal strength of the touch screen sensor relative to a standard touch screen device, allowing improved sensitivity, accuracy, and/or reduced power consumption in the touch sensor.
GTAT's ultrathin sapphire cover plates are extremely versatile and can be comprised of a free-standing, sapphire multilayer composite; a multilayer sapphire-glass composite; or a multilayer sapphire-polymeric material composite.
GTAT's sapphire cover plates offer a low-cost, enhanced shatter and scratch-resistance alternative versus the current glass-based cover screens available for mobile devices.
GTAT's sapphire cover plates offer low-cost, improved resistance to mechanical damage, including cracking, if the material is flexed or bent to fit a curved surface versus the current polymeric-based cover screens available for mobile devices.
GTAT's targeted mobile device market includes: media players, mobile telephones (cell phones), personal data assistants (PDAs), pagers, and laptop computers and notebooks. In other words, GT is not just focused on smartphones but the entire market of mobile devices, including wearable devices.
Hyperion, GTAT's technology that enabled it to develop sapphire laminates for mobile devices, is not covered by the exclusivity agreement between GTAT and Apple.
GTAT entered the point-of-sale market in the spring of 2013 when it introduced the use of sapphire glass on Motorola's MP6000 scanner. In the fall of 2013, GTAT entered into a long-term sapphire supply agreement with Apple that will allow GT to experience economies of scale to significantly reduce the cost of producing sapphire. Last week, GT applied for an ultrathin sapphire cover plate patent that will significantly reduce the costs of producing sapphire laminates that can be used across mobile devices as well as the point-of-sale market. A very large global retailer has been interested in adopting sapphire glass point-of-sale technology for over three years! GT's ability to deliver ultrathin sapphire cover plates at a price that is equal to less durable and more scratch-prone materials will lead to a new wave of sapphire scanner adoption by the point-of-sale market. I was asked before by one of my readers, "What limits do you see for sapphire laminate applications?" My answer was there are no limits! Sapphire laminates will begin to replace glass everywhere you look, one pane at a time, one mobile device at a time, and one point-of-sale scanner at time; and GT Advanced Technologies will be leading the industry charge for years to come.
My detailed analysis focuses on where GT has come from as well as where the company is headed. Just as the name indicates, GT Advanced Technologies is a technology company and in my opinion the stock price at these levels provide one of the best technology values of our lifetime at around $15 per share. Once the Wall Street analysts see the forest through the trees they will begin to pile on revenue and EPS on top of their 2014, 2015 and 2016 estimates. GT's sapphire materials business will Apple provide a solid and reoccurring base of revenue and EPS that should approach $2 billion and $2.00 EPS by 2015. In 2015, GT will see a revival of the solar marketplace including polysilicon production equipment, HiCz and DSS sales, and GT's commercialization of its Merlin solar modules as well as increased demand for GT's 165kg sapphire growth furnaces. In 2016, GT will see increased market adoption of its Merlin solar modules and Hyperion Technology as well as continuation of the capital expansion growth cycle of the solar industry that is expected to being by early 2015.
I'll be the first to admit that I have the highest revenue and EPS estimates on the street for GTAT for 2014, 2015 and 2016. I'd also like to admit that my estimates do include several new products that will be coming online in 2015 and gaining market share into 2016 including GT's triple junction solar cells for mobile devices, GT's sapphire composite solutions for mobile devices and point-of-sale markets and GT's ability to supply sapphire for Apple's eventual switch over to LED displays, which is only a matter a time after the company's purchase of LuxVue.
I currently have a fair value of $87.50 on shares of GTAT, which represents a 17x my 16' EPS estimate of $5.26 on $4.736B of sales and 31x my 15' EPS estimate of $2.84 on $3.177B of sales.
Disclosure: I am long GTAT. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.