Initial launch of the iPhone 6 won't have a sapphire display in any material volumes, in either 4.7" or a 5.5" form factor
according to today's downgrades by Canaccord and UBS. Stock might tank 20% and more today given that everybody already took for granted that the new IPhone would indeed have a sapphire display. Even worse - how will Apple differentiate their new phone from the competition without premium design and innovation
UBS downgraded GT Advanced Tech (NASDAQ: GTAT) from Buy to Neutral with a price target of $22. Analyst Stephen Chin lowered 2014 sales estimates to $700 million versus $800 million previously and EPS of $0.12 versus $0.17 previously. 2015 and 2016 EPS remain $1.30 and $1.60. Chin also noted a slower ramp in Q2.
"Our monthly checks found GT had a successful month of May at its Arizona sapphire fab and estimate it shipped 1.6M two-inch equivalents (TIEs) of sapphire (up 60% m/m) to one of Apple’s cover screen suppliers. We believe this shows solid progress in ramping and running” the sapphire fab as GT is now produc6ing about 20M TIEs annualized after only 3 months of production. However, we expected 4.0M TIEs in May (up 3M m/m) and instead only saw an increase of 600K m/m, less than the increase seen in April of 800K (was 1M, up from 200K), and we are not sure why the ramp slowed. On a positive note, our checks found GT’s May price of sapphire was flat m/m at $2.20/TIE. With estimated Apple sales only $3.5M last month, 2014 execution is more backend loaded with 4Q13 sales likely needing $231M from Apple (57% of tot)," said Chin.
"We believe GT can still hit the midpoint of its sales guidance of $600-$800M but believe our checks of a slower ramp in 2Q14 makes the high end more challenging. We estimate GT needs to ship 158M TIEs of sapphire this year to Apple at a similar price of $2.20/TIE to hit its guidance midpoint versus our prior view at the high end requiring 210M TIEs. Our analysis shows 158M TIEs is still enough to hit our IT Hardware team’s Apple estimate for 2H14 iWatch units of 5.5M (needs 8.2M TIEs) and 16.2M iPhone 6L (needs 73M TIEs). We believe June is a more critical month and estimate 5M TIEs are needed at a minimum with 10M TIEs making the high-end more of a possibility," added the analyst.
So, they're downgrading due to $700M in sales as opposed to $800M. So, $800M means that sapphire is in the iPhone to a certain large capacity on day 1 but $700M is because sapphire won't be in the iPhone in an meaningful capacity? I don't get it.