Cowen Cuts PT on GT Advanced Technologies (GTAT) to $18 Following Apple Event; Lack of Sapphire Usage is N-T Setback

September 10, 2014 9:19 AM EDT
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Cowen and Company is lowering estimates on GT Advanced Technologies (Nasdaq: GTAT) following Apple's (Nasdaq; AAPL) September event on Tuesday. The firm also eased its price target on GTAT from $19 to $18.

Analyst Jeffrey Osborne commented, As part of Apple's product launch, it appears the only product with sapphire cover glass is Apple Watch. Rather than sapphire, the iPhone has what is essentially a very unique and specialized chemical treatment applied to Gorilla Glass. Despite recent checks indicating supply remained very low, we and our AAPL analyst Tim Arcuri still felt at least a small number of the phones - primarily just the very high-end (128GB) - would have sapphire; ergo, this is somewhat disappointing and the intersection of the sapphire CG technology will likely happen, in earnest, with the next phone release. Clearly the ramp at the Mesa, Arizona facility has been slower than expected as evidenced by charges taken on the last quarterly call (August 5th). We note that Apple has filed 3 patents (patent numbers 20140193606, 20140192459, and 20140192467) for ion treating sapphire and over time could leverage this technology and the Arizona facility for competitive products to Gorilla Glass; although the exact timing of commercialization is unclear.

Our bullish stance on GTAT shares stems from growth of new products and the emergence of a capex cycle for solar and was less reliant on the lower margin Apple business. That being said, we had modeled $207 million of our original $625.9 million estimate this year to come from Apple and $666.2 million of our $1.12 billion estimate in 2015 . Management guidance is for full year revenue of $600-700 million provided on August 5, 2014, which we believe included a healthy ramp from Apple and sales of ASF furnace equipment to 3rd parties. We have a hard time modeling $200 million worth of sapphire sales into the watch market alone where ASPs are likely in the $2-5 range per piece. While clearly this development is a set back versus our prior view of the stock, we still see a great deal of opportunity for the company ahead and competitive announcements from Kyocera, Xiaomi and others suggest the move to sapphire is happening and presents an opportunity for the equipment side of the GTAT story at a minimum. In light of the likely slower Apple ramp, we have dropped our revenue assumptions to $506 million in 2014 (versus $600-700 million guidance) and $837 million in 2015 (versus $1 billion guidance), and our price target to $18 (prev. $19) all due to a slower Apple ramp. Our 2016 estimates remain unchanged.

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

GT Advanced Tech closed at $14.94 yesterday.

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