All eyes seem to be focused on Apple (NASDAQ:AAPL) and its $578m contract for sapphire materials with GT Advanced Technologies (GTAT). The two companies signed an agreement nearly three months ago, but anticipation and speculation are rising daily to figure out exactly what Apple has up its sleeves this time around. It's almost hard to forget that it has been only four months since Apple introduced iPhone 5s and 5c to the general public. The Apple enthusiasts are demanding more innovation from Apple this time around and I believe it will deliver and then some.
Earlier this week I wrote my first Seeking Alpha article to give readers an in depth review of GT and their long-term prospects. I also dug deep into the Gorilla Glass (NYSE:GLW) versus sapphire glass cost war. Through my analysis I was able to demonstrate how GT managed to reduce the cost of their sapphire cover screens from $13-18 each to around $3-5 per screen (Gorilla Glass is $3). Gorilla Glass has been covering Apple iPhones since the first unit came off the production line in 2006. I also stated that GT will be supplying sapphire screens for the iPhone 6 and next generation iPod Touch beginning in June ahead of Apple's September launch.
Over the last four days there have been three, very significant, buzz worthy events, linked to the next generation iPhone that I would like to call out:
#1 GT in an almost Apple like fashion sent out a postcard to Mesa, AZ residents. The postcard was a great way for GT to connect with the Mesa community and attract local talent. However, after reviewing the postcard there was one phrase that stuck out like a sore thumb. The phrase reads as follows, "Right now we're looking for people to join the team behind our new state-of-the-art sapphire material manufacturing facility in Mesa, Arizona." The use of "state-of-the-art" sets the tone for what is going to be manufactured in the Mesa facility. Producing high volume, low cost, sapphire cover screens is what I consider to be state of the art. Apple's current product lines only include sapphire camera lenses and sapphire home buttons. My previous article highlighted that Apple has had a sincere interest in using sapphire screens since 2006. Full details of GT's hiring spree can be found here.
#2 Analyst Sun Chyang Xu announced that Apple is going to have two iPhone launches in 2014. More specifically, he stated that Apple will begin trial production of 2 million to 3 million units starting in May. This piece of detail supports my previous premise that GT will begin ramping up sapphire screen supplies to Apple beginning in June.
#3 A report surfaced on Friday that Apple's longtime manufacturing partner Foxconn successfully assembled over 100 next generation iPhones equipped with sapphire covered displays. This is a significant development and a confirmation that sapphire screens will be coming to the iPhone 6.
I'm sure you want to know why I spent so much time on the importance of sapphire cover screens. The reason why sapphire screens are so important to Apple and their innovation is because they need sapphire to protect all of their "cool stuff" under the hood of their devices. They ditched glass in lieu of sapphire camera lenses because they didn't want your pictures to show up with scratches. They acquired Authentec for $356m in 2012, but needed to replace the home button with a sapphire home button, in order to take advantage of the technology. A sapphire screen will also allow Apple to take full advantage of their Authentec acquisition and allow them to add Touch ID technology underneath their entire screen instead of just the home button. To put it simply, Sapphire's hardness is second only to diamond and will protect the screen from being scratched.
The Solar Powered iPhone 6 and Next Generation iPod Touch
This story begins February 5, 2013 when Apple filed an integrated touch sensor and solar assembly patent. The patent reads as follows:
Integrated touch sensor and solar panel configurations that may be used on portable devices, particularly handheld portable devices such as a media player or phone are disclosed. The integrated touch sensor array and solar cell stack-ups may include electrodes that are used both for collecting solar energy and for sensing on a touch sensor array. By integrating both the touch sensors and the solar cell layers into the same stack-up, surface area on the portable device may be conserved. In addition to being used for capacitive sensing, the integrated touch sensor and solar panel configurations may also be used for optical sensing.
The integrated touch sensor and solar assembly patent was a great first step, but it left a lot of loose ends to address, before it could be deployed in Apple's product portfolio. This patent requires a "boost converter" to transmit energy between the solar cells and the device's battery. This patent does not allow the solar cell to convert its energy directly into the device's battery, without introducing an electric current converter to send the energy, at the correct voltage to the device's battery. The key takeaway is this method is inefficient and will require more physical space under the hood than Apple can afford to give up. The "boost converter" technical specifications are below:
The switch or gateway 808 is a schematic representation of a (virtual) unit responsible for the "traffic control" of the electricity flow in the device. This unit may or may not be a concrete unit including circuit elements. In some embodiments, this circuitry 808 may contain a boost converter to change the voltage coming from the solar cells 802 to a value suitable for the batteries 804 or the main unit 806.
September 2013 Apple Posts Job for Thin Films Engineer
September 13, 2013 9 to 5 Mac captured the screenshot of a very "solar centric" position posted on Apple's website. The Thin Films Engineer position required experience with thin-films technology and this individual would assist in the development and refinement of thin films technology applicable to electronic systems. The individual would also join Apple's mobile devices division. My takeaway, this is a new job to create and perfect thin-film (solar cell) charging for Apple's mobile devices. Details of the job posting are listed below:
extensive experience with thin-film technologies in either semiconductor processing or solar industries
knowledge of thin-films in the context of RF shielding is highly desirable
the thin films engineer would join Apple's Mobile Devices group and assist in the development and refinement of thin films technologies applicable to electronic systems
For the record, Apple has plans to power over 4.4 million square feet of space with solar power over the next few years; Apple's Mesa, AZ factory, measuring 1.3 million square feet, a 338,000 square foot data center under construction in Pineville, Oregon as well as Apple's new spaceship headquarters measuring 2.8 million square feet slated for completion in 2016. My takeaway, Apple is very big into solar leveraging technology to reduce corporate costs as well as improving electronic device battery life.
October 2013 Apple Files Patent for Solar Touch Screen Integrated within the Device
October 31, 2013 Apple was granted a new solar touch screen patent, that will allow Apple to power a device, without the need of a "boost converter," which will lead to fewer issues squeezing components underneath the hood of Apple's devices. This is a significant improvement from the February 2013 patent. The patent's technical details are below:
Apple's patent filing states that in the absence of the power adapter and/or mains electricity, the portable electronic device may be powered by the battery until the battery is fully discharged. Because the battery has a limited runtime, operation of the portable electronic device may generally be dependent on the availability of mains electricity. Hence, use of portable electronic devices may be facilitated by improving access to power sources for the portable electronic devices.
Apple's invention relates to providing a power management system that supplies power to components in an electronic device. The power management system includes a system microcontroller SMC and a charger. The electronic devices that will be able to take advantage of Apple's new solar panel include a MacBook, iPad, iPod touch and iPhone.
During operation, the power management system accepts power from at least one of a power adapter and a solar panel. Next, the power management system supplies the power to components in the electronic device without using a converter circuit between the solar panel and the power management system.
The technical specifications indicate that Apple managed to refine the solar charging process, that will enable solar energy, to be transmitted directly into the power supply. I also found it fascinating that Apple listed out the products that are suitable for this technology, which include the following; MacBook, iPad, iPod touch and iPhone. I'm sure you are wondering when we will see the technology being used? Well guess what: every road leads to Mesa, AZ!
Mesa, AZ Sapphire Facility
November 5th, 2013 a strategic partnership was announced with GT Advanced Technologies to open up a Sapphire Materials facility in Mesa, AZ. The facility will be 100% solar powered and is anticipated to create 700 positions and 1,300 construction jobs. Apple and GT have been extremely tight lipped on their relationship until Apple began posting jobs last week for the Mesa location and GT sent out there Mesa postcard over the last week. One job posting that caught my eye was Apple's Manufacturing Design Engineer for work on the (iPhone/iPod). I've called out some specific focus areas of the job that tell me exactly what Apple has up their sleeve:
Surface Finishing - Develop new processes are the area of blasting, tumbling, polishing, lapping, anodizing etc.
Glass Processing - Develop new process for glass scribe/break, CNC grinding, lapping, chemical strengthening, ink decoration, PVD coating etc.
One focus area was on Physical Vapor Deposition (PVD). PVD is a method to deposit thin films by the condensation of a vaporized form of material onto surfaces. The process is carried out in a high temperature vacuum. The most common PVD processes include arc evaporation, sputtering, ion plating, and enhanced sputtering, all of which are related to electronic beams (expensive lasers).
The second focus area that stood out to me was glass scribing. Why would Apple be hiring engineers to develop new processes in PVD and glass scribing at a sapphire plant? So I did what any Sherlock Holmes would do and I researched what scribing of glass could possibly mean. Through my research I located a 2011 article from Purdue University and it turns out scribing is a process used to place ultra-thin film solar cells onto glass. I think I found something, my dear Watson! Ultra thin film solar cells are typically "scribed" onto glass via expensive lasers. Furthermore, Apple's Thin Film Engineer they recruited in September 2013 was required to have solar experience and was brought on to develop and refine thin film technology for Apple's mobile division. The Manufacturing Design Engineer is being recruited to take the established thin film technology and scribe the solar cells onto glass with expensive lasers. The Scribing technical specification are below:
Laser scribing made easy
The research team focused on ways to improve the scribing of the microchannels. Better the microchannels, more efficient will be the solar cells. They tried a process called 'cold ablation' to use laser beams flashed for only picoseconds - quadrillionth of a second. This way, pulsing laser helped in making microchannels with exact depths and well-defined outlines without causing any damage to the ultra-thin-film solar cells and too in a very fast manner
Superiority of the 'ultrashort pulse laser'
The idea of using lasers for scribing the microchannels on the thin-film solar cells has been tried earlier also. But controlling the lasers to scribe exactly to the correct depth and outline was quite a difficult task. But now with the cold ablation technique and using an 'ultrashort pulse laser', the team found success in creating perfect microchannels. With this technique, the team was able to control the laser even at 10-20 nanometer depth.
Solar Cell Laser Show
Apple already told investors they would be spending a record $10.5 billion in capital expenditures in the Fiscal Year ending 2014 including "cutting edge lasers." Everyone including myself wants to know what is going to fill 1.3 million square feet of space inside the Mesa, AZ plant besides GT's furnaces growing sapphire. I believe the answer is a fleet of cutting edge lasers at the cost of a few hundred million dollars. If you think this is too far-fetched to be true, please let me take you back in time via my DeLorean. This isn't the first time Apple will be going laser shopping (insert your own Austin Powers reference now). In 2011, Apple bought hundreds of lasers at a mere $250,000 each while trying to design the MacBook.
$68m Solar Cell Coating Equipment Order
Let's turn our attention to a company called Manz AG out of Germany, who announced a $50m EUR ($68m USD) order in its display division for solar cell coating equipment. The $68m order was announced on January 15, 2013, just four days after Apple posted the Mechanical Design Engineer position that will presumably operate this equipment. The innovative coating technology was developed in close cooperation with a "leading smartphones manufacturer." The last time I checked the smartphone sales scoreboard, there were only two names on that list; Apple and Samsung. The purchased technology includes an "innovative vacuum coating systems" as well as "laser process technology." One more flash back, vacuum coating and scribing (via a laser) were listed in the Mechanical Design Engineer job description. The Manz AG technical description of the equipment purchased fit Apple's Mechanical Design Engineer job description like a "T."
Below are some specific details from the order announcement pulled directly off of Manz AG's website:
These orders will already become effective in terms of both revenue and earnings in the first half of the year
The innovative coating technology, which was developed in close cooperation with a leading smart phones manufacturer, offers excellent prospects for follow-up orders and corresponding high future revenue potential
Along with systems and plants in the automation, laser process technology and measuring technology areas to manufacture smart phones and tablet computers, these orders for the first time also comprise innovative vacuum coating systems to enhance touch panel displays' scratch-resistance
From its established sites in China and Taiwan, Manz AG supplies the leading Asian suppliers to the electronics industry as well as renowned and globally-leading smart phone and tablet manufacturers with equipment to produce touch panel displays and other components for mobile devices
The details above gave me tremendous clues as to who placed this first big order of solar cell equipment. I don't know of any leading smartphone manufacturers besides Apple and Samsung. The delivery of this equipment will be completed by the end of Q2 2014 which is consistent with Apple's expected ramp-up schedule. Manz AG notes that there is potential of high future revenue, which is an indication that additional orders of "significant" magnitude will be placed in the near future. Apple wants to deploy solar charging across all their electronic devices, as evidenced by the October solar patent list that included the MacBook, iPad, iPod touch and iPhone.
Apple filed solar patents that will allow them to power their electronic devices directly through solar cells.
Apple posted and filled a Thin Films Engineer position with solar experience.
Apple signed a $578m contract with GT Advanced Technologies to provide sapphire materials (sapphire cover screens)
Apple announced they would be spending $10.5B in capital during fiscal year 2014 including cutting edge lasers.
Apple recently posted a Manufacturing Design Engineer position that includes "scribing" and "PVD coating" which relate to thin films (solar cells) and lasers.
Over 100 iPhones have been assembled with sapphire covered displays.
My Final Thoughts
Did Apple place an initial order last week for $68m worth of solar cell coating equipment, so they could use lasers to scribe solar cells onto sapphire screens, for the iPhones and iPods that will be released in 2014?
If you think Apple is done innovating, even after they add the solar powered iPhone and iPod, under a sapphire hood in 2014, think again!
Additional disclosure: I am long GTAT and have NO plans to initiate or sell any of my positions over the next 72 hours.