Corning falls, GT Advanced soars following Apple deal; sell-side debates


GT Advanced (GTAT +23.4%) has caught four upgrades and soared to new 52-week highs after striking a huge sapphire supply deal Apple. Rubicon (RBCN +25.3%) is also flying higher. Corning (GLW -2.9%), meanwhile, is heading in the opposite direction as investors worry Apple (and perhaps also peers) will begin using sapphire instead of Gorilla Glass to cover smartphone/tablet displays.

The deal still has some skeptics; they point to the fact GT's sapphire materials sales to Apple are expected carry much lower gross margins than its traditional equipment sales, that Apple isn't providing any purchase commitments, and that exclusivity requirements stand to limit GT's sales to other mobile OEMs. But by and large, optimism about the opening of a major new market opportunity long targeted by GT is overshadowing these concerns.

Cantor is defending Corning, arguing sapphire will more likely be used in small form-factor Apple devices (an iWatch?) than in iPhone/iPad displays. Sterne Agee estimates Apple accounts for 10%-15% of Corning's phone-related sales.

GT's management refrained from providing additional details about Apple on the CC (transcript); Apple tends to demand heavy secrecy from suppliers. But they did strike an optimistic tone about sapphire pricing and furnace utilization rates among traditional clients, and predicted customers will likely " start taking delivery of backlog at a faster pace, as [GT's] capacity opens up again." GT also claimed to be making good progress in commercializing its Hyperion tech (set for a 2015 launch) for solar applications;

On the other hand, GT doesn't think the solar equipment market will "show significant opportunity" before 2015.

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Comments (3)
  • laguna_b
    , contributor
    Comments (313) | Send Message
     
    On the upside, Apple and iPhone as a market has a magic beyond the real value to the company. Based on what we see in todays solar marketplace I think 2014 will be an up year for equipment but you have to hesitate when the CEO of the supplier company is more conservative.
    Apple exclusivity is guaranteed by them owning the plant even as GTAT is on the hook for the equipment. I can't help but think GT could have struck a better deal if the industry was not in such bad shape. I think free of Apple restrictions the upside would be $50/sh but with the restrictions, perhaps $30/sh a year from now....

     

    So....what of the $600M Apple advances? What is tied to the "advance"? Is that a prepayment for sapphire? Is it a guarantee? GTAT must maintain a certain level of capacity....what if Apple does not take it? I hope Tom has sufficient stockholder protections built into this deal. But Apple is unbelievably secretive...we all know that.
    5 Nov 2013, 11:11 AM Reply Like
  • gatlingg
    , contributor
    Comments (380) | Send Message
     
    What I found amazing is that Tom actually talked about a client! Or in the words Tom often uses a "partner". I like the way GT speaks of their customers, even when they can't take delivery of an order; it bodes well for future agreements/contracts.
    The Apple deal certainly has curious details , Apple owns the building, GTAT owns the 700 person labor force (something they once swore they wouldn't do) and even though the question was asked still don't know who owns the equipment. More importantly Tom spoke of it as accelerating their R&D in this field which bodes very well for applications far beyond I phone screen covers. Certainly the folks asking the questions seemed impressed & having listened to alot of these quarterly phone conversations I never noticed that tone in their questions before.
    A small comment Tom made is also very intriguing and that was another reference to (what I believe given past talks) a new material/engine component that would be applicable for hybrid &/or electric cars. Again even if this was to come to fruitition it might well be a year or likely more before it would result in significant sales but it is good to invested in a company looking down the road and not totally obsessed with their quarterly sales.
    6 Nov 2013, 09:24 AM Reply Like
  • laguna_b
    , contributor
    Comments (313) | Send Message
     
    @Gatlingg - I won't claim unique insight on this, but I said a long time ago that if Apple or others are to go to sapphire screens, the purchase of equipment and deployment MUST precede the end product and was not in the least bit surprised that an Apple announcement was made at this time. I was surprised that it was exclusive and pre-funded by Apple.

     

    What you failed to comment on, and I am curious your take, was that the solar biz was not expected to recover until 2015 which would produce end products in 2016. We all have seen the tremendous recovery of the solar industry, especially in their stocks. To me that implies that they would be seeking capital equipment to improve efficiency and capacity and that pre-purchasing would be happening NOW. So why was Tom not more upbeat? Even the analysts were of similar opinion to mine.

     

    Anyone with insight on this or even an opinion?
    7 Nov 2013, 02:21 PM Reply Like
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