CLSA Downgrades GT Advanced Tech (GTAT) to Underperform; Analyst Says Poor Yields Could Impact Volume, Costs
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(Updated - August 20, 2014 11:58 AM EDT)
CLSA downgraded GT Advanced Tech (Nasdaq: GTAT) from Outperform to Underperform with a price target of $19 (from $18). The report noted that GT has installed too much furnace capacity for just an iWatch application, and analyst Mark Heller expects Apple to launch an iPhone with sapphire display cover glass next month. This is generally in line with the latest rumors, but at current levels Heller sees balanced risk/reward. The report also said poor yields were impacting volume and costs.
"CLSA recently hosted an update call with Yole Développement to discuss GT’s sapphire supply agreement with Apple. Yole continues to believe that GT’s Mesa fab is earmarked for iPhone displays and that we’ll see at least one iPhone stock-keeping unit (SKU) with a sapphire cover this year. That said, yields are poor which is impacting supply and GT’s costs. While we expect Apple to launch an iPhone with sapphire display cover glass next month, we think risk/reward is balanced at current levels," said Heller.
"Yole believes that GT’s and Apple’s finishing suppliers are still struggling with yields. Current all-in cost is estimated at about $25 for a 4.7-inch display cover assuming 30% growth yield and 60% finishing yield," continued the analyst. "If growth/finishing yields improve to 60%/75%, then all-in cost will decline to about $16. Looking at GT’s costs specifically (crystal growth and bricking), Yole estimates cost of $12.80 at 30% yield, $6.40 at 60% yield, and $5.50 at 70% yield. Assuming an ASP of $8.90 per unit, this implies a -44%, 28%, and 38% gross margin."
The report went on to say that analysis suggests a few million sapphire units could be available by mid-September.
"Looking at the timing of Apple’s launch and after incorporating supply-chain timing, Yole’s base scenario (no extra sapphire from GT’s advanced sapphire furnace (ASF) customers) suggests availability of 4.7m 4.7-inch displays or 3.0m 5.5-inch displays by mid-September. These numbers increase to about 6.9m/4.6m if GTAT buys extra sapphire from its furnace customers. If growth/finishing yields improve to 58%/70% by the end of 2014, full-year supply is estimated at about 20.2m 4.7-inch sapphire display covers or 13.5m 5.5-inch display covers."
For an analyst ratings summary and ratings history on GT Advanced Tech click here. For more ratings news on GT Advanced Tech click here.
Shares of GT Advanced Tech closed at $18.40 yesterday.
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