GTAT Question

Alan, please share your thoughts on GTAT. I remember you mentioned GTAT was in your watch list. Since solar sector is hot now-a-days and GTAT moved up 10% today, maybe it's worth including it in your watch list. 

I kind of warmed up to GTAT when it was at 3 - encouraged a few downtrodden bulls.  I don't follow it so closely and don't really care for the management team, but I could be missing something.  The key issue to me is the order book for their sapphire equipment.  They have been unable to make shipments - just $15mm in sales there in Q1.  Until they do, people will remain skeptical (50mm shares short!).  One of the metrics I was watching during the downturn was tangible book value - it trades at 6.5X now!  Not a give away.  From March 2012 to March 2013, it declined dramatically - 143mm to just 92mm.  At the same time, debt has increased rather dramatically - no debt at year-end 2011 to now 259mm.  The cash level is 320mm, but a lot of this represents customer deposits/deferred revenue.  60% of sales came from one customer in Q1 - never a good thing.  HUGE inventory at end of Q1.

The price for sapphire material has recently experienced significant decreases. 

We expect that current decreased prices will continue. Consequently, we anticipate

that demand for our ASF systems will also remain lower than in previous quarters. 

Further, customers have requested, and expect that they will continue to request, 

delivery of ASF systems be delayed until the price of sapphire recovers 

which has delayed the timing of which amounts attributable to ASF systems roll-off 

of backlog and into revenue and the timing on which we enter into new contracts to 

sell ASF systems. Additionally, we may receive requests to cancel deliveries, which 

would reduce our reported backlog.

 

One of the expected drivers of demand for sapphire was expected to be, in large 

part, the increased use of sapphire materials in general illumination. To this point,

that broad adoption of LED in lighting is slower than expected. As a result, the future 

demand for ASF systems attributable to this market are not expected to increase 

markedly in the immediate future. The use of sapphire in industrial applications and 

consumer electronics has been adopted to a limited extent, and could lead to new 

market opportunities for the ASF system. While the use of sapphire in these applications 

is still in the very early stages, it represents a potential market and may result in increased 

demand for sapphire manufacturing equipment.

I hope you see how risky this one is.  Of course, if they pull it off, the stock has tremendous upside, but this will take more than just solar recovery.  The company has no recurring revenue - just equipment.  If things get better in two years, that's a year too long, and this company is owned by the debt-holders...