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GT Advanced Technologies Inc. Message Board

  • no.poverty no.poverty Dec 27, 2013 1:09 PM Flag

    RE RBCN SEE ATTAched article re-print

    Rubicon Technology (RBCN) is one of the leading suppliers of sapphire primarily used in the manufacturing of LEDs and silicon-on-sapphire products. Despite the overall growth of LEDs and the potential for sapphire as a cover glass material in consumer electronics (primarily smart phones) I believe RBCN may have a broken business model that cannot be fixed. After a short period of runaway pricing the sapphire industry as a whole has been suffering from a capacity glut that has caused prices to collapse. This trend has reversed with rising prices this year (off of a very low base), but while this has helped RBCN it hasn't offset the collapse of the company's wafer business.

    Highlights:

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    1.Despite several quarters of increasing sapphire prices (likely helped by temporary demand for the iPhone 5S) RBCN still had NEGATIVE 57% gross margins in the most recent quarter.
    2.The company's two largest customers are either going away or will be significantly smaller.
    3.GTAT's deal with Apple will give it unprecedented scale, supply chain leverage and financial resources in the sapphire industry.
    4.Cash burn is set to increase after cash flows have been helped by inventory depletion and lower accounts receivable.
    5.Sapphire is primarily used for consumer electronics (LEDs and now smart phones) leaving little room for high margins over the long-term.
    6.RBCN is making a "build it and they will come" bet on larger diameter PSS because they have few other options.
    7.Shelf filing just went effective, I would bet an equity raise is coming soon.

    There are very few ways to invest in sapphire via a U.S. listed stock. GT Advanced (GTAT) and RBCN are basically it. GTAT announced a deal with AAPL that is light on details, but the basics are they have reached an agreement where GTAT will produce sapphire out of an AAPL facility in Arizona. Given the size of the prepayment by AAPL it looks like it will be the largest sapphire production facility in the world.

    RBCN grows sapphire crystal in Illinois and has a polishing operation in Malaysia. RBCN is much more focused on the LED market where as GTAT has been aggressively pursuing a cover glass strategy for some time. The sapphire market has been plagued by extreme over capacity for the last few years, which is apparent when examining RBCN's financial results. Some analysts estimate that there is still 40% over capacity in the industry. Prices have started to increase over the past few quarters for 2 inch and 4 inch cores due to increased demand for LED general lighting and AAPL buying sapphire for the iPhone 5S. Cores are the step above the raw boules that come out of the furnace. They are in rod shape and are ready to be sliced into wafers.

    While GTAT appears to have secured its future, RBCN's business remains dismal with significantly negative gross margins and fairly large losses.

    The current operations

    RBCN reported Q3 '13 results of $11.1M of revenue and a loss of $0.26. Revenue declined 44% vs the prior year but was up slightly from the previous quarter. The company had a gross margin of negative 57%. This includes an idle plant expense of $2.9M (expenses that would typically be allocated to inventory if plants were operating). Adding that expense back, gross margin would have been negative 31%. The idle plant charge should decrease in the next few quarters as RBCN restarts most of their crystal growth capacity, however, the furnaces in Illinois are only 25% of the charge (according to management on the conference call) while the remainder is mostly from idle cutting, polishing and patterning capacity in Malaysia. It is much less clear when capacity utilization of these assets will increase. It is worth noting that the company is taking a full tax rate benefit every quarter. Without this benefit the reported loss would have been $0.43 per share in the most recent quarter and $1.17 per share for the first nine months.

 
GTAT
11.63-0.26(-2.19%)Sep 17 4:00 PMEDT

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