GT Advanced Technologies Might Be Worth the Risk

A little more than a month ago, I poked and prodded at GT Advanced Technologies (NASDAQ: GTAT  ) to try and determine whether the stock might actually be able to regain even a fraction of its former glory.

After all, shares of GTAT were down more than 68% over the previous year after its core polysilicon business had collapsed along with the broader solar industry. What's more, that was even after popping 10% in a single day after the company announced a memorandum of understanding with Powertec Energy, which stated Powertec's intention to buy polysilicon technology and equipment from GTAT sometime in the second half of 2014.

In addition, the stock had already jumped 10% just two days earlier after an MIT Technology Review article pitched its sapphire tech as a promising potential alternative to Corning's (NYSE: GLW  ) Gorilla Glass product. Of course, overcoming Corning is easier said than done, considering just last week the company informed elated investors that its Specialty Materials segment sales should improve sequentially in the 15% to 20% range next quarter. Of course, that was all thanks to -- you guessed it -- strong demand for Gorilla Glass. 

To its credit, GTAT did announce this week that Motorola Solutions (NYSE: MSI  ) has chosen GT Crystal Systems as the exclusive supplier of 24-square-inch sapphire scan windows for Motorola's new MP6000 multi-plane bioptic imagers (think barcode scanners at the grocery store). That's certainly a suitable place for GTAT's scratch-resistant sapphire to find a home, but it's not exactly the big win investors were hoping for. 

Motorola Scanner, Sapphire glass

Motorola MP6000 scanner. Image Source: Motorola

So how did GTAT fare during its earnings announcement last week? Well, even though the stock ended Wednesday down 5%, let's just say it could have been worse.

More specifically, while the company's first=quarter revenue of $57.8 million represented an 84% drop from the same three months of 2012, its net loss was actually less than expected at $18.7 million, compared with a loss of $159.4 million last quarter and $79.1 million in the first quarter of last year.

But that's not what really had investors worried. Remember, last quarter I noted more than half of GTAT's $1.25 billion backlog came from its sapphire segment. Unfortunately, the company since decided to nix around $356 million in sapphire furnace orders it had previously identified as "at risk." The company went on to elaborate:

While the orders have not been cancelled and the customers remain contractually obligated, the company has determined that these orders are unlikely to convert to sales in the foreseeable future and leaving them in reported backlog, in the company's view, is no longer a good indicator of the company's revenue potential.

As a result, GTAT's new backlog sits around $851 million, including $491.1 million from the polysilicon segment, $8.3 million from photovoltaic products, and $351.6 million from sapphire. Also included in those amounts were around $146.2 million in deferred revenue.

Foolish final thoughts
Despite the difficulties, the fact remains these quarterly results were slightly better than expected. Going further, I have to applaud management for biting the bullet and dropping its at-risk orders from the backlog knowing it might not be well received.

In the end, management still reiterated its previous guidance for 2013 revenue in the range of $500 million to $600 million, and non-GAAP earnings per share between $0.25 and $0.45. At least for now, then, the long-term story seems to remain intact. Besides, we already knew management has made no promises for things to get better in the near future, so all it really needs to do at this point is to continue making progress to stem the bleeding. Given GTAT's $320 million in cash and relatively manageable total debt of $259.6 million, it still has the resources to buy itself at least a little more time to do so.

As I suggested last month, GTAT remains a speculative stock for patient investors who can wait for the business to turn around. As it stands, that probably won't happen until at least next year. If it does, shares of GTAT could easily prove worth the risk for cautious investors willing to open a small position at today's beaten-down levels.

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  • Report this Comment On May 08, 2013, at 1:45 PM, GirlsUnder30 wrote:

    Steve, I'm glad to see some of my fellow fools seeing things as I did. I blogged about this stock as an awesome opportunity in http://caps.fool.com/Blogs/the-awesome-opportunity-with/8013... over a month ago, before its recent ~50% pop. My previous blogs about Chesapeake (CHK / CHKR) and Westport (WPRT) were negative but I was downright evangelical about GTAT. Those heeding my advice should be chuckling pretty heartily about now.

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