Why GT Advanced Technologies Stock Has Lost Half Its Value in 3 Months

Source: GT Advanced.

Investors always look for stocks that can ride on the coattails of large, successful companies, and no company has longer coattails than Apple (AAPL -0.57%). During the first half of 2014, shares of component-maker GT Advanced Technologies (NASDAQ: GTAT) more than doubled as investors hoped that the company's sapphire crystal would play a much more important role in the imminent release of the iPhone 6. Yet, as details came out about the actual phone, investors suffered a crisis of confidence that quickly caused much of those gains to disappear.

GT Advanced is best known for its sapphire material for displays and other mobile-device applications, but the company has a broader scope that includes producing photovoltaic materials for use in the solar industry. GT Advanced also makes polysilicon-based materials for non-PV purposes, such as in the engineering-services field. Nevertheless, with so much attention to the iPhone and other mobile devices, the New Hampshire-based company's fortunes are linked to Apple's in many investors' minds. Let's take a closer look at GT Advanced Technologies to see whether it can recover from its recent losses.

Stats on GT Advanced Technologies

Source: Yahoo! Finance.

Source: Apple.

Why Apple hype crushed GT Advanced stock
Early in 2014, GT Advanced investors got excited about reported moves from Apple that would have changed the materials used in its glass covers. Historically, Corning (GLW -0.23%) has had the inside track on providing display coverings for Apple's iPhones; its Gorilla Glass had a reputation for durability and thinness.

Yet, GT Advanced and other makers of sapphire-based products touted the greater strength and scratch-resistant properties of sapphire compared to Gorilla Glass and, despite the added expense in using sapphire over Gorilla Glass, proponents believed that Apple would make a big shift when it released the iPhone 6. Given Apple's exclusive relationship with GT Advanced to provide sapphire materials, GT Advanced was poised to be the big winner from a shift to sapphire.

That emphasis on its relationship with Apple left GT Advanced exposed to the ups and downs of sentiment about Apple's new smartphone. In July, GT Advanced shares started to drop, with investors at the time largely blaming the drop on concerns about whether the iPhone 6 itself would launch successfully.

Only later did it become clearer that the original belief in sapphire's new role in the iPhone series might be incorrect. When Apple referred to its glass as "an ion-strengthened thing of beauty," experts concluded that Apple had decided to stick with Corning's Gorilla Glass for the iPhone.

What's ahead for GT Advanced?
The next step for GT Advanced depends on exactly what happened within Apple's walls, and what steps the tech giant takes in response. Some analysts believe that GT Advanced was able to supply the necessary amount of sapphire material to Apple's manufacturing partners, but that the companies assigned to craft that material into the final product for use in the iPhone proved unable to do so as efficiently as Apple had hoped. Moreover, subsequent reports suggested that drop tests involving sapphire produced results that disappointed some of those who believed that the material would give the iPhone a much bigger advantage over Gorilla Glass.

Source: GT Advanced.

Regardless of what happens with the iPhone, GT Advanced will still have an opportunity to prove itself with the Apple Watch when it's released early next year. Apple has confirmed that the new device will use sapphire, and that could prove to be an important testing ground for the material in considering whether the device maker will expand its use.

Moreover, Apple still appears to be interested in the long-term potential of sapphire. The company recently filed a patent application for a process that would strengthen sapphire glass, making it harder and less prone to impact-related breakage. If the process is successful, it could open the door to greater sapphire use in future releases of major product lines.

In order to recover from its losses, GT Advanced needs to demonstrate that it won't suffer a huge shortfall from the decision not to use its materials in the iPhone 6. That might not happen during the current year; but in the long run, as long as sapphire performs the way most people expect, GT Advanced could still eventually end up a big winner in its work with Apple.

Editor's note: A previous version of this article inadvertently included comments about an unrelated company. The author and the Fool regret the error.