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The crystal ball is pretty cloudy for GT Advanced Technologies (Nasdaq: GTAT ) investors heading into 2012. Sure, the company has a big backlog of equipment to make, but its customers may not last long enough to take delivery as end markets struggle.
Solar manufacturers are in particular trouble as the market becomes more and more saturated with polysilicon. Then there's the sapphire business, which has a large backlog, but has slowed down orders since the middle of 2011 as raw material prices plunged.
So what does 2012 hold?
Solar woes spread to GT Advanced Technologies
Solar is still GT's bread and butter, with $919 million in polysilicon backlog and $247 million in PV backlog as of the end of the last fiscal quarter. But the solar market itself has been crushed as sales prices fell and stocks tumbled along with them.
On the plus side, GT provides the technology that will make solar cells not only less expensive, but also more efficient in the future. If there's a silver lining in 2012, it's that polysilicon and ingot producers may need to upgrade equipment to keep pace with more efficient producers like SunPower, thereby creating demand for GT even in a weak solar market. The company's HiCz N-Type product can make cells that are 22% to 24% efficient, greatly exceeding what customers LDK Solar and Trina Solar have achieved today.
But there are risks in the solar market as well. Chinese manufacturers have been accused of dumping solar products in the U.S. and if tariffs are implemented GT could be hurt by Chinese retaliation. I don't think anything will come of these threats considering the U.S. was a net solar exporter last year, partly because GT provides equipment and raw materials to manufacturers. But it's something to keep an eye on.
What can we really expect from the sapphire business in 2012? One hundred forty ASF units have already shipped to customers and judging by the company's $955 million backlog, this year should be strong. But a similar dynamic is playing out in the solar market with prices crashing as manufacturers build up capacity.
Demand is expected to increase for sapphire products over the next few years, but as we saw with solar, it could be a rocky transition from an emerging market to a steady market.
Foolish bottom line
GT reduced guidance after last quarter to $950 million to $1.05 billion in revenue and $1.45 to $1.65 in earnings per share for fiscal 2012. With a stock price of $7.74 and a market cap of $984 million, I think that provides a nice value for a company that has $484 million in cash and is buying back more than 10% of its own shares, even considering the risks above.