Slow Solar Market Hits GT Advanced Technologies

When your end markets are challenging it's tough to sell new equipment to manufacturers, a challenge GT Advanced Technologies (NAS: GTAT) is dealing with as the PV and LED markets go through rough times.

The company's second-quarter-earnings results were down significantly from the first quarter, but that much was expected, so the market didn't panic in trading yesterday. Revenue was $167.3 million in the quarter, down from $231.1 million a year ago and $353.9 million in the first quarter. A slow quarter in sapphire and PV equipment led to the low numbers this quarter. On the conference call management said that installation cycles will pick up again in the second half of the year and it still expects full-year revenue to be $925 million-$975 million.

The decline in revenue didn't help margins any as gross margin fell to 36% from 43% last quarter. Earnings per share fell from $0.65 to $0.12, or $0.16 per share on a non-GAAP basis.

The big picture
Chinese solar manufacturers are GT's biggest customers and the numbers coming out of China aren't good right now. Trina Solar (NYS: TSL) , one of GT's customers, reduced second-quarter guidance earlier this week and other manufacturers have done the same. Combine that with the negative margins and challenging balance sheets at polysilicon makers LDK Solar (NYS: LDK) , who is also a customer, and Renesola (NYS: SOL) , and the expectations are muted for the next few quarters.

The sapphire business is still in its early stages and still has a $697 million backlog so there's a lot of upside in this new business.

Where GT may really explode higher is when its HiCz product hits the market in mid-2013. This product will be a game-changer in solar if it lives up to is potential by causing a step change in solar efficiency.

Foolish bottom line
Management stuck to its revenue guidance and non-GAAP earnings guidance from May, which projects $1.30-$1.40 in earnings per share. At this rate the stock trades at just 3.7 times earnings, which is a great value even if the company's end markets are challenging right now.

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