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)