No matter how the bulls try to spin it, GT Advanced Technologies' (NASDAQOTH: GTATQ ) fourth-quarter and full-year 2012 earnings were ugly, plain and simple.
For the quarter, revenue fell 33% from the year-ago period to $102.3 million, helping GTAT achieve an eye-popping net loss of $159.4 million.
Of course, it's important to note those scary numbers incorporate nearly $162 million in one-time charges, including a nearly $72 million "write down of inventory and related charges" due to prevailing poor photovoltaic (PV) market conditions, $57 million "related to the impairment of goodwill related to the PV business," and a $2.5 million hit from "certain sapphire materials assets acquired with the acquisition of the business which are now obsolete." Ouch!
If we put these big charges aside, however, GTAT actually managed a slightly more respectable adjusted net loss of just $18.1 million. Interestingly enough, the folks at GTAT weren't surprised in the least, with CEO Tom Gutierrez asserting:
Our Q4 results came in largely as expected as we continue to face challenging conditions in the solar and LED markets. We have taken steps to resize the business and manage our balance sheet and believe 2013 will be a year during which we continue to strengthen our foundation and further diversify the business.
As fellow fool Travis Hoium pointed out last week, while solar specialists including LDK Solar (NASDAQOTH: LDKSY ) , Trina Solar (NYSE: TSL ) , and Yingli Green Energy (NYSE: YGE ) have historically been some of GTAT's largest solar equipment buyers in the past, few are currently in the financial position to make additional investments in the company's latest HiCz technology. Indeed, as the solar industry has continued to crumble over the last two years, shares of LDK, Trina, and Yingli have fallen 78%, 77%, and 87%, respectively.
What's more, even GTAT's customers who do have cash to purchase new equipment have been kept on the sidelines as the result of unresolved international trade tensions in the solar sector. Even still, Guiterrez also mentioned during the conference call he sees evidence that their "largest customers' access to government and commercial capital is likely to improve over the next several quarters." Considering HiCz will help the likes of LDK, Trina, and Yingli even further decrease the cost and increase overall efficiency of solar cells going forward, its a safe bet GTAT remains nicely positioned to profit when market conditions finally improve.
For now, however, with the current oversupply helping to extend the deterioration of GTAT's core business, its shares currently trade hands more than 80% below the all-time high mark set less than two years ago. It's reassuring, then, that the folks at GTAT have no delusions that market conditions will improve in the near future. As a result, the company plans to delay any significant expenditures related to market introduction of their HiCz product until 2014, at which time they believe market demand will finally drive adoption.
For its part, GTAT still isn't content to rest on its laurels. To the contrary, the company is working diligently to continue diversifying its business away from solar and further toward the growing sapphire segment. Sure enough, it expects more than half its 2013 revenue to come from its sapphire business, with the bulk of that arriving during the second half of the year. Fortunately, these expectations are bolstered by the fact that $716.5 million of GTAT's $1.25 billion backlog at the end of 2012 was attributable to the sapphire segment, with around 2/3 driven by LED and industrial solutions and the remaining third to come from emerging applications including potential low-volume smartphone and camera lens adoption.
As I mentioned in December, however, we can be sure Gorilla Glass creator Corning (NYSE: GLW ) will have something to say about that. After all, Corning has placed huge bets on its specialty materials segment -- and has the deep pockets to back them up. In fact, Corning's unrivaled ability to survive and thrive in any market is one big reason I think the stalwart could be a great stock to own for the next 50 years. Even still, that doesn't mean GTAT can't give the glass behemoth a run for its money, and sapphire wouldn't need to take much market share to make a big difference for the comparatively tiny company.
Foolish final thoughts
As Warren Buffet says, "If you wait for the robins, spring will be over." It's safe to say, then, investors will be on the edge of their seats over the next few quarters to see if there are any signs of improvement from the markets in which GTAT is involved.
While there's plenty of risk in holding shares of GTAT -- even given today's rock-bottom valuation -- when the light at the end of the tunnel finally appears, patient long-term investors could be handsomely rewarded as the stock quickly climbs back to more normal levels.
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