If we are to believe GT Advanced Technologies (NASDAQ: GTAT) CEO Tom Gutierrez, the deal with Apple to manufacture sapphire material is only the very beginning of what the company will do in the future. On March 14 -- the 20th anniversary of the company's founding as GT Solar -- the company rolled out a series of new products and technologies that Gutierrez said would "add well over $3 billion worth of market potential" in the coming several years. With solar manufacturers like SunPower (SPWR +0.00%) expanding production capacity, and First Solar (FSLR +2.40%) aggressively working to improve the efficiency of its panels, is there indeed that much more room for GT Advanced to grow its business?
Let's take a look at what's happening in the industry and how GT is positioning itself to take advantage of new opportunities.
Back to the future?
GT Solar, as the company was known prior to 2010, was primarily focused on developing technologies that solar manufacturers use to increase production capacity and lower production cost, while also making more efficient panels. However, the company's expertise in growing crystals -- both silicon and sapphire -- that have applications far beyond just the solar industry. Gutierrez had this to say on the March 14 presentation:
The company was born as a technology company. We remain a technology company; and as such, we needed to continue to increase the spend on R&D. And today, we're spending more than four times what we spent four or five years ago, and you'll see the results of that.
In a nutshell, the company's investments into its core technologies as a crystal grower led to the Apple partnership, but it is far from the only thing the company has going for it.
Last fall, SunPower announced it would expand production capacity by 25% after running at or very near full capacity for all of 2013. Similarly, First Solar has indicated it will invest in reducing both its manufacturing costs and work to increase the efficiency of its panels. The actions of these two leaders in the U.S. solar industry is an indication of the growing demand for solar panels:
Source: GT Advanced presentation (opens PDF).
As you can see, demand could essentially triple (or more) over the next three years, meaning manufacturers like SunPower and First Solar will both need to ramp up their capacity and increase the efficiency of their products.
PV bouncing back?
The key products GT Advanced introduced for its core PV solar market are the SDR-1K CVD Reactor, and 5th generation FBR to produce TCS (a key ingredient in panel silicon). These new products both significantly reduce the manufacturing cost by cutting energy consumption and increasing output capacity, while also costing less to acquire -- per unit of production capacity -- by 50% as compared to the first generation. Additionally, GT's HiCZ (TM) system is designed to be more efficient and automated than what is available on the market today.
GT recently signed a deal to supply $336 million of equipment to Cosmos Chemicals for a new polysilicon production facility in Malaysia. This new facility will have an annual production capacity of 25,000 megatons with a much lower cost of production than older facilities it will compete against. While not directly related to this new facility, SunPower CEO Tom Werner indicated the company is planning even further expansion beyond the current planned buildout, largely based on new technologies:
In terms of another fab, yes our team is looking at where we would take that new technology from those last two line pairs and build that in much larger scale at a fifth fab and on, and so yes we're doing the work to decide where we would do the fifth FAB and it would be a larger fab on that new technology.
Here's how GT Advanced sees the opportunity playing out for its latest SDR, FBR, and HiCZ technologies by 2017:
Source: GT Advanced presentation.
Combined, these alone represent more than $3 billion in market potential.
Merlin could change efficiency, reliability game for panel makers
As demand for polysilicon increases, solar manufacturers will be challenged to continue finding ways to reduce the cost per watt of panels. GT Advanced says its Merlin technology will reduce the total system cost by more than 10%, by reducing the module cost, increasing the panel efficiency, and also making for easier-to-install panels. For companies like SunPower and First Solar, which build large-scale solar factories in addition to manufacturing panels, finding ways to reduce the cost of installation matters as much as reducing the actual cost of making the panel.
The keys behind Merlin are that it can be integrated into existing lines, meaning it's much easier and cost-effective for panel makers to get the cost benefits without having to build new production lines to support Merlin. Merlin's key benefits are its reduction in silver used to make the panels, as well as the large bus bars that shade parts of the panels and reduce efficiency. The initial data supports a gain of 0.7% in efficiency just by changing to GT's Merlin technology, while simultaneously reducing the manufacturing cost.
Final thoughts: Just the beginning
For investors concerned about the company's large exposure to Apple, this is a great reminder that -- as important as the Apple deal is -- GT's future is much bigger. The company is in a unique position to benefit from the significant growth in demand that companies like SunPower and First Solar will be experiencing over the next several years. By offering technologies that will allow panel makers to both reduce manufacturing costs and increase production line capacity, GT is set to grow its business in a big way.
