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Is it Too Late to Buy GT Advanced Technology Inc?

Shares of GT Advanced Technology  (NASDAQOTH: GTATQ  ) have doubled this year. After a notable pullback, the stock is right back to all-time highs of around $19. The deal with Apple  (NASDAQ: AAPL  ) is very much a game changer, as GT is transitioning its business model from sapphire furnace sales to sapphire material sales. Revenue this year is expected in the range of $600 million to $800 million, with sapphire comprising 80% of the business.

Becoming an important Apple supplier is not without risks, though, as the relationship can cut both ways. Apple will be a big revenue driver, as GT expects most of its sapphire revenue to be generated in the second half of the year -- which happens to coincide with Apple's product launches. However, if Apple catalyzes industry-wide adoption of sapphire as a cover material, GT would be able to diversify its customer base. The exact same thing happened to Corning and Gorilla Glass.

GT has now received three out of four prepayments from Apple, which is helping fund the construction of the Arizona plant. The company is also accumulating a lot of deferred revenue, which should be recognized once sapphire is shipped to Apple.

Sapphire materials have lower gross margins than sapphire furnaces, so profitability remains a key question. The overall sapphire market is "red hot right now," according to management.

In this segment of Tech Teardown, Erin Kennedy discusses GT Advanced's sapphire prospects with Evan Niu, CFA.

(relevant segment begins at 14:07)

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  • Report this Comment On June 17, 2014, at 7:06 PM, GaryDMN wrote:

    They didn't stop selling furnaces and the dam and for furnaces is way up, not just for the sapphire ones, but the poly-silicon ones too.

  • Report this Comment On July 02, 2014, at 12:33 AM, JohnFredriksen wrote:

    John Fredriksen doesn't understand. Why would you use sapphire in a furnace? Why not concrete instead? Or better yet, an oil based material?

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Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

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Evan Niu

Evan is a Senior Technology Specialist at The Motley Fool. He was previously a Senior Trading Specialist at a major discount broker. Evan graduated from the University of Texas at Austin, and is a CFA charterholder.

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