GTAT posts rare quarterly setback
The slowdown in the solar industry -- particularly in China -- has finally caught up to GT Advanced Technologies, according to the company's last quarterly filing, which explained in detail why sales plummeted and profit margins shrank.
The company -- which is headquartered in Nashua but has most of its New Hampshire facilities in Merrimack -- did sell $167 million worth of furnaces to make materials needed for solar cells and LED lighting in its second quarter of the calendar year ending June 30 (which is the first quarter of the company's transition year before it switches to a calendar year). But that's almost a 28 percent decrease from the same quarter the previous year. And the company posted a net income of nearly $14.76 million, or 12 cents a share, but that's compared to $52.1 million in the comparable quarter of 2011.
This is a rare quarterly setback for a company that had continued to post ever-larger numbers in the past, despite the state of the economy. Still, it wasn't as bad as expected, emphasized Tom Gutierrez, president and CEO.
"We exceeded expectations, a notable accomplishment given the continued headwinds in the solar and LED markets that we serve," said Gutierrez in the company earnings release back on August 1.
In its August 8 filing with the Securities and Exchange Commission, the company goes into detail about how strong and persistent those headwinds really are.The company still has a significant backlog of $1.6 billion, and while that does contain some $272 million in deposits on products that have yet to be delivered, the company already had to reduce the back log by $136 million in the last fiscal year -- and there are concerns how it will hold up given the economy, the industry and the situation in China. And there hasn't been much to add: only some $13.8 million of new orders last quarter.
"In each of our three business segments, the end-user demand for the output of our equipment has either declined substantially or increased supply has surpassed demand. In order to decrease inventories, we believe that companies selling polysilicon, solar cells and wafers and sapphire material, including some of our customers, have had to sell at prices that provide little or no margin and, in some cases, some suppliers may continue to build inventory," said the filing. "We expect that these circumstances will continue through the remainder of calendar year 2012 and into early calendar year 2013. As a result, much of our business for the remainder of calendar year 2012 will result from filling orders in our backlog and we do not expect, during this time, that our backlog will increase in a material amount during the same period. "What was once the company's mainstay -- Photovoltaic business: making furnaces that produces cylinders that can be sliced up and made in solar wafers, has pretty much fallen apart. The company only sold $9.4 million worth of furnaces last quarter, as opposed to $198.6 million worth in the comparable quarter last year. It actually lost money in that sector -- $11.1 million -- compared to making some $92.8 million in 2011.
High hopesGT has been moving into producing HiCz furnaces that would produce a monocast crystal, which produces more efficient cells, by purchasing a company in Missouri last year, but that has yet to pay off. "We may not recognize substantial revenues from these products for several quarters, if at all, and they may not generate revenue in amounts previously recognized through DSS multicrystalline furnace sales," said the filing.Things are better with the company's polysilicon business: that's the material that is put into the furnace to make the photovoltaic crystals. The company recorded $121.5 million in revenue resulting in $44.5 million in profits from that sector, both multiples of the comparable quarter in 2011. Here the glut may favor GT, because its furnaces, which can produce the material cheaper, are in demand. However, the revenue increase last quarter " was driven primarily by revenue recognized on one customer," and could fluctuate wildly from quarter to quarter.GT had high hopes for its newest segment -- its sapphire business -- that it entered by acquiring Crystal Systems in Salem, Mass., in 2010. Here revenue picked up to $36 million, mainly from the sale of the furnaces, as opposed to the $8.6 million in the comparable quarter last year, mainly due to sale of the sapphire crystals themselves. However, GT expected that the consumer demand for more energy-efficient lighting would drive the demand for more sapphire crystals (and therefore more sapphire furnaces), but this "broad adoption of LED in lighting is slower than expected" and is "not expected to increase markedly in the immediate future."Instead, there is interest in the use of sapphire in industrial application and consumer electronics, and GT is placing its hopes on that.Overshadowing much of this is the situation in China, which accounted for $36.1 million in sales (or 22 percent) last quarter, as opposed to $171.2 million during the comparable quarter last year. Chinese sales counted for half of all sales in fiscal 2011 and almost three-quarters of sales the previous year.For one, growth is slowing in the Chinese solar industry, partly because reduced subsidies in Europe for solar energy means less demand for solar cells. Then there is the difficulty getting credit. Finally, a brewing trade war has exacerbated the situation.