Has GTAT found a gold mine with sapphire?

Apple deal gives N.H. firm an upbeat outlook

Merrimack-based GT Advanced Technologies will be nearly doubling its labor force to more than 1,000 employees and will invest $550 million at its new Arizona facility during 2014, the company announced Monday, thanks an open-ended deal to provide Apple Inc. with sapphire screens for mobile devices.

But there will be no increase in New Hampshire employment as a result of the Apple deal, which represents a geographical, economic and technological sea change for the company.

Apple has already made the first two of four prepayments that will total a promised $578 million for the materials. Already GTAT has a $170 million obligation to Apple, an indication of its first sale to the high-tech giant.

And it’s expecting more.

GTAT predicts that more than 80 percent of its revenue will come from sapphire-related sales, either through the Apple deal or by selling sapphire equipment to other companies that might provide materials, primarily for LED lighting and other uses.

(Executives were coy about the breakdown, but one analyst figured that more than half of those sales – about $350 million – will come from Apple. It was a figure executives refused to confirm.)

GTAT – which went public in 2008 as GT Solar – once tried to convince the world that it was more than a solar company. Now it is taking great pains to show that it is more than a sapphire company, or some junior partner to Apple.

Indeed, on Monday, executives talked about launching a handful of new technologies, including one developed in the San Francisco Bay area, that would substantially bring down the cost of solar. Some of those technologies – the company wouldn’t say at this time which ones – are being developed in New Hampshire.

Monday’s conference call was supposed to be about GTAT’s earnings, which were not good. The company lost more than $87 million last year (more than 71 cents a share), which is actually more than a $25 million improvement over 2012. Revenues – which totaled nearly $300 million – were less than half the previous year.

Still, the company has a lot of money to lose. It had more than $600 million in cash and equivalents at the end of the year.

GTAT blamed some of the loss on the Apple ramp-up, including most of the $180 million for plant property and equipment spent during the last quarter of the year, and passing on, or putting off, some equipment sales.

But last year seems like ancient history, as investors’ eyes are mainly on future fruits from the Apple deal.    

Already, GTAT’s stock rises and falls on news about whether Apple will or will not be using the sapphire screens in its next iPhone. (The price jumped up over 16 percent to $14.14 at the close of trading on Monday, despite the net loss.)

Apple’s interest in sapphire is serious – as the half-billion-dollar promised prepayment indicates. And that deal will soon pay off, GTAT predicts, though not in the first quarter of this year. The company said that the first quarter will only account for 15 percent of annual revenues (which are projected to range between $600 and $800 million).

In the latter half of 2014, however, the company expects to become profitable again. All told, GTAT expects non-GAAP earnings per share in the range of 2 to 18 cents for 2014, and by 2016 about $1.50 a share.   

But not all of this is because of Apple, emphasized CEO Tom Gutierrez.

The company’s $600 million backlog – which excludes the Apple business – is split roughly between sapphire production equipment, primarily sold to LED manufacturers, and polysilicon production equipment, mainly for material used in solar cells. Both industries, long dormant, are beginning to wake up.

There are still barriers – tariffs and trade wars and the like – that haunt the solar industry in particular. But all that won’t matter if GTAT succeeds in developing a technology that will bring down production costs for both solar cells and LED lighting.

“People have got to keep their eye on the ball, and the ball is cost – it’s not political games back and forth between the different entities,” said Gutierrez.

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