GT Advanced Technologies (GTAT) looks set to make its way into Apple's (NASDAQ:AAPL) upcoming iPhone. The rumors on the web indicate that Apple will be integrating sapphire into the iPhone 6, and this is great news for GT investors as the company appears to be in agreement with the Cupertino-based company to supply sapphire. As a result, it might be a good idea to take a look at GT Advanced Technologies and check the moves that it is making to profit from increasing sapphire adoption.
Sapphire's prospects look bright
With sapphire demand rising at a faster pace than supply, prices are likely to increase. To date, GT has received around $440 million of the $578 million of total prepayments that are to be received from Apple. The company expects total prepayments will be helpful enough for sapphire equipment production at the Arizona plant, which is likely to contribute over 80% of the revenue this year.
Advanced Sapphire Furnace customers are running at high utilization rates due to demand, and the company has sufficient capacity to meet this surge in demand. The new ASF165 technology increases the batch size by over 40% and reduces production cost. This new ASF platform will be available to new customers as well which are aiming for the LED and the industrial markets. The ASF165 configuration is expected to increase revenue in the second quarter.
The company has also made progress in the polysilicon market with considerable increase in supply and pricing. Spot poly prices exceeded $20 per kilogram for the first time since 2012 in the first quarter. It is expected that the prices will continue to rise and will touch the mark of $24 per kilogram by the end of this year. GT is very much confident of its strong position in polysilicon technology.
The next generation SDR1K reactor, which targets a significant improvement, output and lower energy consumption than the SDR 600, is now available commercially. Also, the company is expanding its Merrimack operation by adding sapphire production capacity in Merrimack to so as to continue its R&D initiatives and provide pilot production capacity for the LED business.
Apple is a big catalyst
The tie-up of GT with Apple to supply sapphire displays the growing interest in ASF, Polysilicon, HiCz and DSS solutions that have been contributing to the company's growth.
In my previous article on GT Advanced Technologies, I highlighted Apple's patent filings which indicated that the company has found a way to overcome the problems of a sapphire display. I stated,
"The two major problems with using sapphire in smartphones are high cost and oil affinity. However, if you take a look at Apple's recent patent filings, you will be convinced that the Cupertino giant has solved these problems. Apple recently patented a technique which involves fusing a thin sapphire laminate sheet with cover glass. This means that Apple will not have to manufacture pure sapphire displays for the iPhone 6, which will ultimately bring down the cost of sapphire displays.
However, Apple isn't done bringing down the sapphire manufacturing cost. The company recently filed two more patents called "continuous sapphire growth" and "heat exchangers in sapphire processing" patents. These new techniques offer a more proficient and cost-effective way of producing sapphire. Apple is likely using these inventions in their new sapphire plant in Arizona. The Arizona sapphire plant will now exploit and accumulate geothermal energy which will be used to operate the furnaces. Thus, the plant will now be able to produce larger amounts of sapphire due to the increased heat efficiency. In addition, this technique will also reduce the amount of waste produced.
Moving on, Apple has also taken care of the oil affinity problem. Last month, Apple filed an "oleophobic coating on sapphire" patent. As the name suggests, oleophobic means oil-repellent, and this technique is expected to help the company produce smudge-proof sapphire screens."
Apple's recent LiquidMetal Patent is again a strong indicator of the fact that the company will use sapphire in the iPhone 6. Apple is planning to use LiquidMetal and sapphire to make the screen of the iPhone 6, which will make its glass shatter-proof. Also, last month, Apple was granted yet another patent called "Methods and systems for integrally trapping a glass insert in a metal bezel." This means that Apple can now flawlessly enclose sapphire inside of LiquidMetal bezels. Multiple patent filings clearly indicate that Apple wants to use sapphire in its upcoming devices and this should benefit GT Advanced Technologies in the long run.
As Apple hasn't officially announced that it will using sapphire in its upcoming iDevices, GT Advanced Technologies' share price could take a huge hit if Apple decides to dump sapphire. Moreover, even after the cost reducing initiatives, Corning's (NYSE:GLW) Gorilla Glass is still cheaper than sapphire. Thus, Apple can chose to not use sapphire in order to boost margins.
The growth prospects of GT Advanced Technologies look really strong. In fact, over the next five years, its earnings are expected to grow at a CAGR of 48%, which means that it is a solid growth stock. Considering the company's tie up with Apple and the positive trends in the sapphire market, GT Advanced Technologies looks set to scale new heights.
Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.