Unbreakable future: Apple invests in sapphire laminate tech

Synthetic optical sapphire
Synthetic optical sapphire "boule." Image via GT Advanced Technologies website.

WASHINGTON, December 4, 2013 – Markets this month have been experiencing any number of problems. But there are bright spots here and there in this market nonetheless. One of them could be a company known as GT Advanced Technologies, Inc. (GTAT).

This NASDAQ-traded stock’s website describes the company as a “diversified technology company with crystal growth equipment and solutions for the global solar, light emitting diode (LED) and electronics industries.”

The site further notes that GTAT “operates in three segments: its polysilicon business, its photovoltaic (PV), business and its sapphire business.”

To make a somewhat complex story shorter, GTAT specializes in the production of silicon-based materials primarily intended for use in the technology and solar (PV) industries; and the manufacture, in its specialized furnaces, of synthetic sapphire material in solid single-crystal ingots or “boules.”

Here’s a company video explaining what GT Advanced does for a living:

It’s the company’s synthetic sapphire segment that’s getting the attention these days.

The reason why is quite simple. Sapphires are nearly as tough and strong as diamonds. Synthetic sapphire material, among other uses, can be made into an incredibly durable glass. And wouldn’t you know—the much-maligned (of late) post-Jobs Apple is very, very interested in sapphire glass. Or something close to it, since sapphire glass is still quite expensive to produce.

And that’s where GTAT comes into the picture. According to AppleInsider, GT Advanced Technologies Inc. recently announced “a multi-year, $578 million contract with Apple to supply advanced sapphire material.”

An Apple a day keeps the red ink away

It seems that a major problem with the iPhone, as well as with other major smartphones, is that its tough surface glass—a product called Gorilla Glass, manufactured by Corning (GLW)—will still crack if you drop it the right way, forcing you to put your phone in dry-dock for an expensive glass replacement.

This has troubled Apple’s customers as well as Apple itself, and the company has been looking to solve the problem. According to several pieces in Seeking Alpha, Apple has been researching ways to replace Gorilla Glass screens with sapphire screens. But that presents another problem as it turns out. “Corning’s Gorilla Glass screen currently costs less than $3 per unit, while the same display in sapphire would cost $30.”

The solution: “laminating glass with sapphire would help close this large price differential.”

For that reason, while sapphire glass might be an excellent future solution to the problem posed by smart-phone screen fragility, sapphire-laminated Gorilla Glass may be an optimal current solution. So it’s not surprising that Apple is reported to have recently filed a patent for a new fusion process “that will add [a] sapphire laminate layer” to the screens of “future iPhones, iPads and potentially the iWatch.” Hence, Apple’s contract with GTAT.

“Apple’s investment,” the article continues, “is a prepayment funding the accelerated development of GTAT’s “next generation, large capacity” Advanced Sapphire Furnace [ASF], which is designed to produce high quality sapphire material at a breakthrough low price.”“The contract, detailed in GT’s quarterly results announcement,” according to AppleInsider, “involves the Arizona factory that Governor Jan Brewer announced would create 700 jobs and employ 1,300 construction workers.

A further important tidbit: “Apple is building the facility that will house the GT-owned ASF equipment, and GT will reimburse Apple over the five year contract, beginning in 2015. The contract stipulates a minimum level of capacity and involves supply exclusivity for Apple.” (Italics ours.)

What this really means in plain investor English is that Apple has made a huge commitment to sapphire screen laminate technology and to GTAT’s manufacture of synthetic sapphire materials for the immediate future, to the point where it is effectively underwriting a new factory and creating hundreds of new American jobs to make this happen faster.

Which in turn means is that GTAT—whose margins, like those of most leading-edge technology innovators, are largely invisible—will get a huge boost from an industrial-titan partner over the next few years. Additionally, GTAT’s sapphire technologies are likely to find their way into additional uses and industries now that Apple, a renowned technology innovator, is essentially vetting these technologies.

And wouldn’t it be interesting if Samsung needed GTAT technologies too?

Add this to the company’s LED technologies—likely regarded as being on the “green” side whether we like it or not—a key to the lighting of the future not to mention a still-growing presence in TV, plus the uncertain virtues of its silicon/solar capabilities (also green), and you may have a bargain-priced winner of a stock for the long haul. (Emphasis on the word may.)

Today’s investment tip

According to Seeking Alpha, “Shares of GT Advanced Technologies (GTAT) could more than double by the end of 2015. This company experienced a difficult business environment in 2011-2012. Its revenues declined by 78% from $271.6M in Q1-11 to $57.7M in Q1-13. However, its revenues rebounded in Q2-13 to $168M, which may be the start of a long term trend.”

The AppleInsider piece tends to concur with Alpha’s conclusions, observing that “following the Apple deal GT restated its 2014 revenue range to $600 to $800 million…noting that the ‘sapphire segment [is] expected to contribute approx. 80% of the year’s revenue’ and projecting 2014 revenues to double by 2016.”

Looks good. Of course, as always, there are no guarantees.

GTAT is pricing a “secondary” issue of stock this evening to be used in the main, according to the prospectus, for general corporate purposes. Meaning that there aren’t vulture capitalists hovering around ready to scarf up all the offer’s proceeds to pay themselves “special dividends” at new shareholders’ expense.

Likely to price at under $10 per share, stock purchased on this secondary—an offering of new shares of an existing publicly traded company as opposed to an IPO—could be a deal, even in a market that’s gotten decidedly toppy and negative of late.

We’ve put in for shares on this deal and should know tomorrow whether we got any—one usually does on secondaries, but not always.

If you’re not in on the deal (or if we ourselves don’t get in), next best step is to try to catch the stock under $10 per share. However, any prospective investor should look ahead and understand that Q1 2014 could be iffy for nearly all stocks if Obamacare proves to be even more of an economic disaster than it promises to be—a major reason why markets are going down right now, “taper” fears aside.

For that reason, and on general principals, our comments are not meant as either a buy or a sell recommendation for our readers. For obvious reasons, we don’t usually do that. And in fact, we’ve been selling some profitable positions lately in case the current downturn gets out of hand.

But in general, the Maven hates to be entirely out of the market. This unsung little company could be a nifty way to ride Apple’s next wave of iPhones, other than loading up on the much bigger company’s high-priced and highly volatile stock.

If we guess right, stock in GTAT’s sapphires could be a delightful replacement for the coal Mr. Market seems intent on dumping into our stockings this otherwise festive Christmas season.

Disclaimer: The author of this column maintains several active trading and investment portfolios and owns residential and investment real estate.

Positions mentioned above describe this author’s own investment ideas and decisions and should not be construed as either buy or sell recommendations. The current market is highly treacherous and all investors travel at their own risk. Caution should be exercised at all times.

Illustrations, charts, commentary, and analysis are only the author’s view of current or historical market activity and don’t constitute a recommendation to buy or sell any security or contract. Views, indications, and analysis aren’t necessarily predictive of any future market or government action. Rather they indicate the author’s opinion as to a range of possibilities that may occur going forward.

References to other reporters, analysts, pundits, or commentators are illustrative only and do not necessarily represent an endorsement of such individuals’ points of view. If specific investment vehicles are mentioned in any article under this column heading, the author will always fully disclose any active or contemplated investments in said vehicles.

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