UBS Slashes PT on GT Advanced Technologies (GTAT) to 75c; Relationship with Apple (AAPL) Remains Unclear

UBS maintains its Neutral rating on GT Advanced Technologies (NASDAQ: GTAT), but chops its price target from $13 down to $0.75.

Analyst Stephen Chin commented:

We believe GT's multi-year sapphire materials agreement with Apple (Nasdaq: AAPL) which was announced just 11 months ago has gone much slower than expected and contributed to this chapter 11 filing. Our proprietary monthly GT checks last week showed GT's shipments to Apple were still quite low at only around 2M two-inch equivalents a month which was well below our estimate for full nameplate capacity of this sapphire factory at 32M TIEs. We had previously estimated a downside case of GT having an opportunity to raise capital in 4Q14 if it did not receive its 4th and final cash prepayment from Apple of $139M this month. While Apple and GT have never confirmed what GT's sapphire was supposed to be used for, we believe it was for the initial iPhone6 and watch covers and this inability to fully ramp may have contributed to the sudden bankruptcy filing.

GT reported that it ended 3Q14 with only $85M of cash which is significantly lower than 2Q14 which had $333M. We estimate GT's ongoing quarterly cash burn is only around $30M per quarter which leaves about $218M in cash burn from something else. We note GT reported 2Q14 restricted cash from Apple of $214M and believe GT may have had to return cash to Apple as required by the prepayment agreement.

GT reported that it still expects to conduct business as usual but it is unclear to us if this still involves selling sapphire to Apple. Our new estimates now assume zero sales to Apple and only include sales of solar equipment, polysilicon equipment, LED equipment and Hyperion sales. We will continue to rely on our proprietary monthly sapphire checks to help determine if GT's relationship with Apple is still ongoing and if GT's factory is capable of fully ramping. Until GT's sapphire factory can show it can ramp to full capacity we lack confidence that there will be any additional potential acquirers.

For an analyst ratings summary and ratings history on GT Advanced Technologies click here. For more ratings news on GT Advanced Technologies click here.

Shares of GT Advanced Technologies closed at $0.80 yesterday.

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