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Apple Effect: On Track Innovations Soars, GT Advanced Slumps

Apple Effect: On Track Innovations Soars, GT Advanced Slumps

By Reuters | Updated: 11 September 2014 17:39 IST

Apple Inc's unveiling of larger iPhones and a mobile payments service led to contrasting fortunes for GT Advanced Technologies Inc and On Track Innovations Ltd.

Shares of GT Advanced plunged a second day on Wednesday after it emerged that the company's scratch-resistant sapphire glass had been left out of Apple's new large-screen iPhones.

Stocks of mobile payment service providers such as On Track rallied after Apple introduced the long-awaited tap-to-pay technology on its latest iPhone and smartwatch on Tuesday.

(Also see: Apple Watch Unveiled as 'Comprehensive Health and Fitness Companion')

The addition of the mobile payments service is expected to boost sales of the latest iPhones and help Apple claw back market share lost to mobiles running on Google Inc's Android platform.

Israel-based On Track gained as much as 50 percent after the company said it was testing two products that would equip Apple's older iPads and iPhones as well with mobile payment technology, or near-field communication (NFC).

Shares of other NFC-technology makers also rose. Net Element Inc more than doubled to $4.75 and USA Technologies Inc jumped as much as 15 percent to $2.35 on Wednesday. Shares of VeriFone Systems Inc were up 5.7 percent at $37.

GTAT: Slow production
GT Advanced's shares more than doubled in the nine months between Tuesday's unveiling of the new iPhones and Nov. 4, when the company announced a partnership with Apple to build a plant in Arizona to make sapphire materials.

After it became clear that only two Apple Watch (First Impressions) variants would have sapphire glass, at least three brokerages cut their price targets on GT Advanced's stock.

About 80 percent of GT Advanced's 2014 revenue was expected to come from sapphire-related sales, although the company had warned of a slow ramp-up in production of the material.

Analysts at Goldman Sachs said there was "heightened risk" about GT Advanced's ability to meet its 2014 revenue forecast of $600 million to $700 million, cutting their rating to "neutral" from "buy".

The brokerage's price target cut was the steepest - to $14 from $20.

The stock should be trading at $7.50, much lower than its Tuesday close of $14.94, according to StarMine's Intrinsic Valuation model, which takes analysts' five-year estimates and models the growth trajectory over a longer period of time.

Thiemo Lang, a portfolio manager at RobecoSAM in Zurich, told Reuters the investment firm sold its entire holding in GT Advanced in April because of "serious execution risks in the ramp-up of the sapphire production and their immediate suitability for cover glass application".

GT Advanced's shares were down 13 percent at $95 in afternoon trading, while On Track was up 22 percent at $4.07 on the Nasdaq.

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