Seeking Alpha

CLSA's GTAT downgrade focuses on yields/margins; GLW higher

  • Following a CC with compound semi consulting firm Yole Development about GT Advanced's (GTAT -2.4%) supply deal with Apple, CLSA's Mark Heller reports Yole believes at least one iPhone featuring sapphire cover glass will launch next month. However, it also thinks GT and Apple's sapphire finishing suppliers "are still struggling with yields."
  • Yole estimates Apple's all-in sapphire cost is at a steep $25 for a 4.7" display, assuming a 30% growth yield and 60% finishing yield - that's over 8x the $3 cost estimate other analysts have provided for Gorilla Glass (GLW +1.5%) panels. GT is assigned an $8.90 ASP.
  • At the same time, Yole thinks costs could drop to $16 if growth and finishing yields respectively improve to 60% and 75%, boosting GT's margins along the way.
  • Heller writes Yole's base scenario suggests only 4.7M 4.7" sapphire displays, or 3M 5.5" displays, will be available by September.  Worth noting: With Apple having reportedly placed orders for 70M-80M iPhone 6 units, those numbers appear conservative in the event at least one of the models fully uses sapphire.
  • Corning is moving higher. The company stated last month Gorilla Glass sales have been hurt by "lower-than-expected sales for planned new models."
  • Earlier: CLSA downgrades GT Advanced to Underperform
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Comments (35)
  • Hurtsogood
    , contributor
    Comments (595) | Send Message
     
    See you on 9-9-14

     

    Lets talk then
    20 Aug 2014, 01:34 PM Reply Like
  • 10542701
    , contributor
    Comments (32) | Send Message
     
    This is all known already, Heller. You're about four months behind the curve...Wow. So what this means is, with the more expensive sapphire that I spend a bit more for, I won't have to spend $25.00 on a screen protector or even more for a case. So they are actually saving me money....So what is the issue???....oh yeah....more manipulating garbage is the issue.
    20 Aug 2014, 01:35 PM Reply Like
  • neoleo
    , contributor
    Comments (8) | Send Message
     
    pretty much ....$25 for piece of mind that my screen will not crack ...i'll pay the extra .....if it was $50 i would still pay it......
    20 Aug 2014, 02:29 PM Reply Like
  • iop
    , contributor
    Comment (1) | Send Message
     
    yes fully agree, POS garbage report from CLSA!
    20 Aug 2014, 02:29 PM Reply Like
  • gpalermo64
    , contributor
    Comments (884) | Send Message
     
    Whether Apple in fact will use GT Sapphire on the iphone we will just have to wait and see. But I have seen company analysis of cost for things like this and they usually are completely wrong. I work for technologies companies and know the actually costs of things like this and every time I have seen an analysis of what the cost should be they are usually very high or very low they hardly ever get it right on.

     

    I personally do not believe Apple would be using this unless they already proven they can get the yields need to meet the production goals they have set. They would not take this big of risk and unless they had plan B already in the works. They may have both a GG3 and sapphire glass ready to go and just a matter or attaching the display to the glass. Also they not going to impact margin that bad just to prove that can do it.

     

    I find it interesting that Corning has been saying for a while that their product is better and it is too hard to make sapphire the size of a display. They have been putting out lots of FUD around sapphire, of course they have to since their business depends on GG3 not sapphire. Corning would not know if they are in or out at this point unless they are the B plan for iphone 6 and could be making the statements because they have the design, but Apple could flip the switch on them or Apple is only using sapphire on one modal and Corning has not idea.
    20 Aug 2014, 01:42 PM Reply Like
  • stevewojo
    , contributor
    Comments (210) | Send Message
     
    What's missing in the analysis of the cost of sapphire coverplate for the iPhone6 is the cost of the protective cover. If sapphire is that much stronger than gorilla glass and almost unbreakable, the additional protection, costing about $15, is not required. This will lessen the price increase.

     

    Thinking that suppliers are struggling with yields is different than knowing. Stating this belief as fact when it is speculation is not appropriate in light of the wide swing of millions of dollars. I guess if you have a good story that someone will believe, caveat emptor.
    20 Aug 2014, 01:45 PM Reply Like
  • SpinyNorman
    , contributor
    Comments (244) | Send Message
     
    Yole's speculation (or is it just a paid hit job?) about yields are ridiculous. It's not as if this is the first time GTAT has made sapphire. They are the best in the business which is why Apple selected them.

     

    Yole's speculation (GTAT negative margins! ha!) is also completely at odds with GTAT's very recent revenue and earnings guidance, which I would take to be rather better informed.

     

    Finally, why would Apple be ordering 60-70M units if GTAT is limited to a few million per month?!

     

    I wonder what sort of retraction Yole will offer on 9/9 after Apple prove them wrong by announcing sapphire-only iPhone 6 available in massive volume? "Uh, I guess we were totally wrong. *shrug*"?
    20 Aug 2014, 01:45 PM Reply Like
  • nlitwinetz
    , contributor
    Comments (101) | Send Message
     
    It seems like Yole can't do math. GTAT reported $220M worth of deferred revenue in Q2. Even if you assume that half of that is equipment revenue (which would be great for GTAT since equipment has better margin) then that leaves $110M worth of deferred sapphire revenue. Using an ASP of $8.90, that works out to a little over 12M screens...that were ready to be shipped at the end of Q2. Using a more realistic ratio of Sapphire to Equipment ratio and factoring in the sapphire that GTAT has produced (and is producing) since the end of Q2 and it seems very realistic that there will be enough Sapphire to cover all IPhones for a September launch.
    20 Aug 2014, 01:45 PM Reply Like
  • nautor42
    , contributor
    Comments (194) | Send Message
     
    32% of GTAT's float is shorted. I think there are some folks really worried about a short squeeze as AAPL nears it's announcement.
    20 Aug 2014, 01:53 PM Reply Like
  • pagreen1966
    , contributor
    Comments (661) | Send Message
     
    You hit it on the nail there, nautor42!
    21 Aug 2014, 07:40 AM Reply Like
  • Hurtsogood
    , contributor
    Comments (595) | Send Message
     
    100% ^^^^^
    20 Aug 2014, 01:54 PM Reply Like
  • sonicted
    , contributor
    Comments (239) | Send Message
     
    "Cost could drop to $ 16 and GTAT has an ASP of $ 8.90"

     

    I strongly doubt this is true. Why would GTAT have reiterated its guidance just a few weeks ago?
    20 Aug 2014, 02:05 PM Reply Like
  • Nocifer
    , contributor
    Comments (174) | Send Message
     
    http://bit.ly/1zCm6KJ .. No thanks, clueless analyst..
    20 Aug 2014, 02:11 PM Reply Like
  • Altopip
    , contributor
    Comments (3) | Send Message
     
    Now, now...let's all calm down. Better yet, let's thank CLSA for acting as a barometer for buying more shares.
    20 Aug 2014, 02:28 PM Reply Like
  • JEEZ LOUISE
    , contributor
    Comments (76) | Send Message
     
    The truth about sapphire and what no one is talking about:

     

    Everyone knows how durable sapphire is but that is only half the reason why apple switched to it. The second and it might be an even more important reason has to do with the life of the lithium ion battery. The photoluminescence of sapphire is 15% greater than Gorilla Glass. This means that the new Iphone will have a longer battery life because you don't need to use as much lighting in the phone in order to see the screen. Recently apple has been getting knock by Samsung because of the Iphones battery life; this should change when the new Iphone comes out. The Iphone its self will be bigger, so a bigger battery will be in it and with the use of sapphire glass this could lead to a 30-40% longer battery life. Sapphire kills multiple birds with one stone that is why all smart phones manufactures will eventually switch. That is the real reason why sapphire is so important to the consumer electronics industry in general.

     

    Ignore the noise.
    20 Aug 2014, 02:53 PM Reply Like
  • Big Lew
    , contributor
    Comments (9) | Send Message
     
    It also has better tactile response .
    20 Aug 2014, 02:59 PM Reply Like
  • JEEZ LOUISE
    , contributor
    Comments (76) | Send Message
     
    It has a better tactile response because it disperses electrons way more efficiently than silica glass. But that isn't as big of a deal as the energy savings and durability. Although it takes a lot more energy to produce sapphire in terms of kilojoules, there will be a huge savings in the amount of energy used in the IPhone its self. So really sapphire is way more energy efficient when you are talking about 250 million IPhones.
    20 Aug 2014, 03:39 PM Reply Like
  • GoGowadof100s
    , contributor
    Comments (128) | Send Message
     
    Innovate or die. new screens, new processors, all must be included in the new phone.
    Think of how many people u have seen with cracked screens its terrible.
    20 Aug 2014, 11:38 PM Reply Like
  • jamesingram32
    , contributor
    Comments (565) | Send Message
     
    my younger brother upgraded from his galaxy ace to an S4 2 months ago, as he's a photographer, on the move all the time...since then....
    he's spent £240 that £ not $, on 2 replacement screens already.
    These screens will be a major differentiator.
    21 Aug 2014, 07:31 AM Reply Like
  • Big Lew
    , contributor
    Comments (9) | Send Message
     
    Two "THINKS" and one "SUGGESTS", in this article. It contains NO facts and should not even be published .
    20 Aug 2014, 02:58 PM Reply Like
  • Ray2cleo
    , contributor
    Comments (188) | Send Message
     
    Will 'cross off' any future CLSA postings. Obviously attempted manipulation. Too many facts and other releases countermand their statements here. We'll all see 9/9.
    20 Aug 2014, 04:17 PM Reply Like
  • mrphil49
    , contributor
    Comments (215) | Send Message
     
    WOW - This is how analysts and brokers who rely on past quarterly reports and do not do their homework are worthless.

     

    GTAT was and is first and foremost a Solar Company.

     

    Apple put in over $700,000 plus shared technology to make the Phoenix plant happen. A plant, by the way that is huge, up and running at full speed using huge amounts of Solar power!
    GTAT can't possibly show serious growth until they finish writing off the costs of such a massive expenditure in growth of production so don't expect any quarterly numbers show major financial growth for awhile.
    GTAT is BIG into their Hyperion technology that only they have. It allows the cutting of the silicon and many other products into unbelievably small thicknesses with very little loss.
    GTAT's Hyperion ion tech just got FDA approval for trials in killing tumors like CANCER. It cuts at the molecular level and only where it need to do so. It cuts waste and therefore cost enormously.
    GTAT just announced that their ground breaking Merlin technology for binding solar cells so much closer to the glass (or Silicon if they can make the boules large enough) or actually within the molecular structure in order to improve energy production from a solar panel.
    GTAT also has much to do with the primary ingredient used in the new high efficiency TESLA batteries.

     

    So look to Apple for short term boosts or drops, but I see a big opportunity when the "Pro's" don't understand the technology.

     

    Anyone notice that GTAT is not an American company and making the silicon in Phoenix but all tech use has to go to Apple, means tax advantages for Apple. Why else would they give GTAT more $ to build the plant than the company is worth.

     

    And yes, I disclose that I have some money in GTAT plus I bought a lot of Apple when Steve came back to work at Apple for $7 a share pre-two splits. (Ive already had a lot of "toys" in his workshop that were not going anywhere until Steve saw them.

     

    ps: Silicon + Merlin + Hyperion makes solar a real hope for clean energy for the future that did not exist (cost effectively) just last year.
    20 Aug 2014, 06:36 PM Reply Like
  • tnek
    , contributor
    Comments (28) | Send Message
     
    I think you forgot a few zeros on how much Apple put into the plan.
    20 Aug 2014, 07:56 PM Reply Like
  • mrphil49
    , contributor
    Comments (215) | Send Message
     
    Thanks for catching the typo.
    Yes that should have been over $700 million invested by Apple.
    21 Aug 2014, 01:42 AM Reply Like
  • jamesingram32
    , contributor
    Comments (565) | Send Message
     
    heck of a response, and great understanding of 'it's more than sapphie' thanks. just clicked on 'follow'

     

    oh, and huge congrats on the aapl buy, that must have set you up for life
    21 Aug 2014, 07:35 AM Reply Like
  • stevewojo
    , contributor
    Comments (210) | Send Message
     
    "Anyone notice that GTAT is not an American company ..." The comany is based in Merrimack, NH, my home town, started by a local. And you say it is not American? And your source for this "fact?"
    21 Aug 2014, 08:19 AM Reply Like
  • gatlingg
    , contributor
    Comments (380) | Send Message
     
    "GTAT is not an American company". Odd, I thought NH was part of the US
    21 Aug 2014, 08:30 AM Reply Like
  • mrphil49
    , contributor
    Comments (215) | Send Message
     
    Thanks. I invest in people, both those who run the company and those who buy their products. I also make it a point to understand the technology of what they do. Math will only get you so far. It won't find those stocks that will explode in the future when current numbers are bad or mediocre such as LQMT. The ignorant don't realize that their product is actually molecularly like glass and not metal yet stronger than Titanium. Sure it's a gamble, but there is not much to lose. Steve Jobs was a good bet as was Ive and his room of "toys" Steve found him languishing with upon his return to Apple.
    Apple would have set me up for life but for the IRS... As a minority owner (37+%) of a successful 41 year run company, I got hurt/disabled on the job. No Workers Comp as partners can force you to opt-out or be fired. They did so, stole the company & cut off my insurance as I was fighting to stay alive. Wife used retirement savings to pay medical but the IRS sees that as income first & deductible second so w/out income I hit the AMT & lost my deductions as well as being taxed on the money. 60% of all bankruptcies in the USA are from catastrophic medical problems. Wife and I are OK, but the IRS wants their blood.
    Note: There are bills in Congress to give the Government access to your savings in IRA/Roth and K-1...

     

    I wonder if Apple is also moving into Solar... Steve had good reason to watch the medical industry for years at the end, hence the so called "watch". Tim likes to do good for the world and also make money. Apple also uses a lot of solar as do all those server farms (the cloud) that use tons of electricity...
    25 Aug 2014, 10:41 AM Reply Like
  • JPnhy
    , contributor
    Comments (1142) | Send Message
     
    It would take Apple a good dose of risk to play o nsaphire on this new model. Markets have are expecting something really new. Apple could pay for it. it would not be a matter of cost reduction. Far from it. Moreover, no real innovation on saph. SO it is hardly a choice for Apple to bring on saph. in to the new model, especially when it is clear they are not in need of that. It would be much more problable if they were to intruduce this next year on 6s
    20 Aug 2014, 11:18 PM Reply Like
  • gatlingg
    , contributor
    Comments (380) | Send Message
     
    the conference call on 8/5/14 reiterated their guidance for the year. Most of GTAT's earnings are going to come from selling sapphire to Apple. just possibly it is all for I watch or camera lens or home button but more likely it's coming from phone screens (and some equipment sales)
    21 Aug 2014, 08:37 AM Reply Like
  • nankaimar
    , contributor
    Comments (6) | Send Message
     
    With GTAT's solar technology, research and the stronger photoluminescence of sapphire, Apple might surprise us with solar charging capability for the new iPhone as well!
    21 Aug 2014, 09:12 AM Reply Like
  • Nocifer
    , contributor
    Comments (174) | Send Message
     
    I hope that they would surprise us with built-in solar charging in the glass this year. If that's true then that'll be MASSIVE surprise which would give massive boost to GTAT stock but there is no leak about this possibility yet. Maybe for iPhone 7 or so? Who knows..
    22 Aug 2014, 09:25 AM Reply Like
  • haschultz
    , contributor
    Comments (821) | Send Message
     
    First, I did not know that there was a timeline with GTAT stock and price (except for option players that is).

     

    What happens when GTAT and Apple solve these issues..........perhaps with the use of GTAT's coming Hyperion. Then what happens to cost and margins???

     

    Second, why only talk of sapphire? What about Merlin and PV and SiC and graphene?

     

    If your time horizon is 2+ years, this stock has growth engineS (yes capital S plural) and will be just fine. Until then, the 40 million shares shorted need some FUD (Fear, Uncertainty & Doubt) so they can cover their asses (shorts and ass pun intended).
    21 Aug 2014, 08:56 PM Reply Like
  • gatlingg
    , contributor
    Comments (380) | Send Message
     
    actually you should have capitalized the whole word or phrase.
    26 Aug 2014, 05:27 PM Reply Like
  • kojak00
    , contributor
    Comments (9) | Send Message
     
    For some reason I am suddenly reminded of an old saying:
    Those who know, don't say. Those who say, don't know.
    26 Aug 2014, 12:20 PM Reply Like
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