I got a PM from someone who will remain nameless saying they invested a small amount of money in GT and wanted to know my exit strategy so I wrote up a PM to further explain my feelings about the company. Please take all this with a huge grain of salt and don't invest in GT without doing your own research.
So I'm not sure how much you studied GTAT but they have 4 main product lines. The newest product is a monosilicate which will replace their polysilicate offering, basically re-reducing their offerings to 3.
This Mono stuff has a much higher efficiency than all Polys on the market at a cost that is not much higher at all. All the previous Poly Equipment GT sold can be upgraded to this new tech. So not only is GT creating an industry which people can enter, they are also creating upgrade options for anyone who has bought their Poly equipment. Other companies are (for the next few years at least) at an extreme disadvantage since GTAT is the only company with this high quality, low production cost, product offering. They aren't the industry leader, they are the industry.
The "CZ" thing on the graph is a type of product not in heavy use. Even though it's more efficient the cost to produce it makes it prohibitively expensive. DSS is Poly.
GTAT suggests this Mono business will generate $400 million in revenue per year starting at the end of 2013 at profit margins about equal to those they have with all their other products (40%+ gross margin). As a side note GT is able to get these high profit margins because their equipment is more efficient than what they call "copycat companies'.
In addition to Mono you have GT entering the LED market and SNAP getting 1bb in backlog from people who want their equipment. In addition to the accepted orders they are turning people away due to the inability to produce that many machines. This means the back log is high quality (the companies will def will pay for this round of equipment). GT also chose businesses that stand a very good chance of succeeding (will have to upgrade to more efficient LED equipment in the future). In total GT has over 2bb in backlog when you count all their offerings. Here is a slightly outdated graph. I think GT expects to be able to do almost 500mm a year in LED business. There will certainly be boom and bust cycles here so I don't think expecting 5mm a year until the end of time is realistic.
OK, so last years rev was like 900K and next years (we are almost half way in since GT does not run off the calender year) is supposed to be, and very, very likely will be, between 1 and 1.1 billion.
So you have a new business in LED that will generate somewhere above 500mm per year very easily and the LED industry is growing at a very fast rate. As costs go down it will just grow faster, additionally, lower costs are good fot GT!
Since GT is an equipment manufacturer it will not experience the issues that come from a commodity type business (actually selling the LED
material), which their customers will, to our extreme benefit. GT's customers will have to upgrade again and again to keep up with costs.
GT is able to maintain it's profit margins by bringing superior equipment to market before anyone else. As a side note, by buying GT you are betting they will continue to out innovate everyone else, that's the big thing. Getting on with it... As far as I know you can't upgrade GT's stuff with non GT stuff, that's just a total guess though. The companies GT works with pick an equipment manufacturer and stick with them unless they want to re-outfit their entire business.
Next you have a new business (Mono) that will possibly generate 400mm a year starting in a year or so. No competition here, just a few years to crush and watch everyone squirm.
Then you have the PV business that will generate some amount of revenue. I think it was over 30% of rev for the last full year, so around 300mm. This is expected to drop quite a bit for the next year or so at least. This drop off is fully baked into any numbers GT has released.
OK, so the main issue is the solar industry is fucked right now. It's very much a boom and bust industry and right now it's fairly bust. Again, this is totally baked in to the numbers and estimates of GT. That's why you see solar companies with P/E's of less than 5. That and some of those solar companies are in the commodity side of the business, selling actual materials, with profit margins from 10% to less than 0% depending on the efficiency they are able to offer end users. Any profit they make will largely have to be reinvested in equipment upgrades to improve productivity and cut costs. This hugely benefits GTAT.
What I think will happen is a few things, depending on the timing they could all be a huge catalysts for GTAT.
* LED industry is growing, estimates put growth anywhere between 12% to over 20% a year, and the price of LED is rapidly approaching a point where it will be a sensible alternative for a lot of uses not only because of the inherent advantages but also because of price. Additionally there are more and more uses for LED's as time goes on, right now the next boom is coming from use in flat panel TV's and cell phones. There are also bans being placed on incandescent lighting in Asia and Europe, but not for 5 years or so.
* Solar industry will eventually rebound (and then bust again, lol). Interesting to note that a lot of the big players are turning this industry wide slowdown into an opportunity to increase productivity and lower costs (leading to GT still filling orders). This will force out smaller players that don''t have money or credit to upgrade and match new efficiency. Asian companies (where the majority of GT's business is, and the majority of solar business is in general) tend to operate at lower margins and also build excess capacity compared to other areas of the world, that's also good for GT but it does lead to these boom and bust cycles.
* GT's Mono offering will allow them to acquire new customers and probably sell as many machines as they can produce. They will also be able to convert all the Poly vmachines they sold into Mono machines.
* Cool side note is they have been working on getting their tax rates down and have done so pretty successfully. Over the next year or so it will probably drop another 2%-3%, which is sweet. They are doing this by building stuff in low tax areas and only keeping very new product offerings here in the states so the tech is not stolen.
I think within a year or two the landscape of the advanced tech industries will be much different, these are my hopeful assumptions.
* GT will be rocking in the LED business and generating over 500mm in rev a year.
* PV will generate some small amount...
