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Superficial scratches are not only damaging in and of itself, they usually occur over the area touch screen devices have most contact. Given that most devices contain touch screen encryption, including swipe pattern recognition, many of these superficial scratches allow unauthorized users to gain access to information on the device. This decreases the level of confidentiality devices provide. Scratches and cracks have resulted in increased repair costs, security breach, decreased screen resolution, and unsatisfied customers. Analysis of mechanical, optical, and electrical properties of five leading display technologies suggest replacement of popular Corning (NYSE:GLW) products with GT Advanced Technologies (NASDAQ:GTAT) ASF Glass; second in durability to diamond.

Type of Glass

Dielectric Constant [k']

Density [g/cm3]

Refractive Index [n]

Vickers Hardness [kg/mm2]

Shear Modulus [GPa]

Gorilla Glass (Corning®)

0.77

0.61

0.86

0.3

0.2

Lotus Glass (Corning®)

0.6

0.63

0.86

0.28

0.21

Sapphire Glass (GT ASF®)

1

1

1

1

1

Eagle XG Slim Glass (Corning®)

0.56

0.6

0.86

0.29

0.21

Lotus XT Glass (Corning®)

0.64

0.65

0.86

0.28

0.23


As clearly demonstrated in the table above, Sapphire outperforms all of Corning's® top display technologies; mechanically, electrically, and optically. Relative to its leading competitor, Sapphire is more compact, harder, and has the capability to handle more stress per area of display. These mechanical properties are all demonstrated by density, Vickers hardness, and shear modulus, respectively. A high dielectric constant allows greater electrical insulation between user and device. Sapphire having a higher refractive index indicates a smaller angle of refraction which means light is traveling through the medium with less glare.

Don't take my word on it, let's learn from Tim Cook CEO of Apple (NASDAQ:AAPL); a conservative spender with a free cash flow of over $14 billion. AAPL has already struck a deal with GTAT involving a 3-year contract in sapphire displays. This will allow AAPL to drastically reduce their expenses on display repairs, freeing up assets to use elsewhere. Sapphire will enhance the resolution, protect displays from scratches and cracks, and shield its touch screen displays from excessive heat produced by powerful processors such as the new A8.

Corning®

Corning currently generates most of its profits from its display glass technology. It is currently used on televisions, computers and handhelds. Corning is known for five types of glass: Gorilla Glass, Eagle XG® Slim, Corning® Willow® Glass, Corning Lotus® Glass, and Corning Lotus® XT Glass.

Eagle XG® Slim

The Eagle glass consist of 0% heavy metals. Its selling point is being environmentally friendly. The glass can be as thin as 0.3 mm. Acid etching is a common technique to thin-out and add displays on LCD panels. With a 0.3mm width, Eagle glass can bypass this expensive step. This glass can be used in mobile phones, tablets, computers, televisions, and monitors. Eagle glass is a fusion-drawn sheet. It has a thermal expansion at room temperature of 35.5 X 10 -7/o C. Unfortunately, after being reacted with 5% HCL at 95o C, Eagle glass lost 0.79 mg/cm3; a large sum compared to Sapphire's physical properties.

Corning® Willow® Glass

Willow glass is as thin and bendable as a sheet of paper. It can undergo high-temperature roll-roll processing, like newsprint. This temperature can exceed 400o C, and will reduce production cost. It has a thickness of less than 200 microns. This display will allow for the production of lighter mobile and non-mobile technology such as tablets and flat panel televisions, respectively. Unfortunately the density and durability is no match relative to Sapphire.

Corning Lotus® Glass

This form of display glass is compatible with organic light-emitting diode (OLED) displays and liquid crystal displays (LCD). It is also compatible with high-temperature processing. It can be designed to be as thin as 0.5mm. Lotus glass, like other Corning® glass is available as a fusion drawn sheet and made from Alkaline Earth Boro-Aluminosilicate. As demonstrated earlier, its mechanical, electrical, and optical properties underperform that of sapphire displays.

Corning Lotus® XT Glass

Lotus® XT can be as thin as 0.4mm. This is 0.1mm thinner than the normal Lotus ® glass. It is made from the same alkaline material and is also available in fusion drawn sheets. Although a lower dielectric constant than sapphire, it is capable of supporting LCD and OLED technology.

Corning ® Gorilla Glass

Corning's® current third version of gorilla glass is described to be 8-10 times more scratch resistant than the previous version. Unfortunately for Corning® this still means that their glass is not scratch resistant, a statement GTAT® can claim in regards to their sapphire glass. Corning® is desperately trying to make up for the statistics displayed in the table above, by adding features to its glass such as "anti-microbial." The new anti-microbial glass does, however, come with a disclaimer, "Corning makes no direct or implied claims to protecting users."

Corning® can offer consumers a thin flexible screen, however, all other properties favor sapphire. If one is not seeking paper-thin Willow® glass, but rather a durable scratch free glass with greater optical resolution, then Corning® is not your best choice.

All of GLW's display products are made from the same Alkaline Earth Boro-Aluminosilicate material and available in the exact same form, fusion drawn sheets. Its innovations do not involve the use of other materials, rather repetitive experimentation with the same raw material. Unfortunately this lack of R&D is being reflected on GLW's financials.

USD in billion

2012

TTM

Revenue

8

7.8

Gross Profit

3.4

3.3

Interest Expense

0.11

0.12

Total Assets

29.4

28.5

Operating Cash Flow

3.2

2.8


Sapphire has been used many times on watches. Just like mobile devices, watches are products which can easily be banged against the wall or scratched. It was from 2012 to TTM that initial thoughts of using sapphire on mobile technology were becoming reality. Since GTAT's meeting with AAPL, GLW's revenue decreased by $200 million and its Gross Profit fell by $100 million. In just one year, operating cash flows decreased $400 million and interest expenses rose by $10 million. Will GLW be able to maintain an operating margin greater than their interest expense?

During a time when their competition was growing, GLW depreciated in total assets by $100 million. Is GLW currently in a financial crisis? If we analyze the past 5 years, then no. However, given the growth and competition in today's technology sector, they may be in the near future.

Before GTAT met with AAPL, GLW's financials were relatively stable.

USD in billion

2009

2010

2011

2012

Revenue

5.4

6.6

7.9

8

Gross Profit

2.1

3

3.6

3.4

Interest Expense

0.082

0.109

0.089

0.111

Total Assets

21.3

25.8

27.8

29.4

Operating Cash Flow

2

3.8

3.2

3.2


During 2009-2012, when Gorilla Glass® was the most popular choice for mobile devices, GLW's revenue increased by $2.6 billion and Gross Profit increased by $1.3 billion. There was also an increase of $8.1 billion and $1.2 billion in total assets and operating cash flows, respectively.

GTAT

On February 10, 2014, Wendell P. Weeks, CEO of Corning® sold 153,334 shares at $18.492/ share. If you do the math, this adds up to be $2,835,452. Just a few days later, on February 18, 2014, CFO, James B. Flaws sold 20,499 of his shares at $19.16/ share. If the CEO and CFO are willing to distance themselves from their company by over $3 million, that should make mobile technology companies like AAPL also maintain their distance.

Sapphire is a type of stone which has been used in the technology industry for decades. It has strength and durability which gives it a range of applications. It can be used in bulky items like jewelry, or micron thin technology items such as electronic wafers. The durability and capability of producing a light weight product with enhanced optical resolution, has made sapphire manufacturers such as GT Advanced Technologies®, pursue display technology for mobile devices.

The idea came to surface last year when GTAT signed a deal to supply sapphire screen material to Motorola (NYSE:MSI). Although at the time, MSI was simply going to use this in their scanner, GTAT's CEO Tom Gutierrez said, "GT's ASF sapphire is virtually scratch-proof, making it ideally suited as a screen material over reinforced glass because it can withstand the extreme strike forces the scanner system experiences during its use. The durability and optical performance of GT's ASF sapphire material has broad applicability in other cover and touch screen applications, and we are pursuing a number of these promising opportunities."

GTAT has performed a comparison amongst not only Corning's® Gorilla glass, but also other leading display technology materials. The study's course of action and criteria can be seen below:

Physical Property

Sapphire

Gorilla Glass© Corning©

Xensation® Schott®

Dragontrail® ((AGC))

Soda Lime Glass

Fused Silica

ALO®

Spinel

Density (g/cm3)

1

0.6

0.62

0.62

0.63

0.55

0.93

0.9

Young's Elastic Modulus (GPa)

1

0.21

0.21

0.21

0.21

0.21

0.94

0.8

Mean Flexure Strength (MPa)

1

N/A

N/A

N/A

0.04

0.06

0.42

0.19

Shear Modulus (GPa)

1

0.2

0.2

0.2

0.2

0.21

0.9

0.9

Fracture Toughness (MPa√m)

1

0.3

N/A

N/A

0.33

0.29

0.87

0.65

Knoop Hardness (GPa)

1

0.33

0.34

0.37

0.32

0.26

0.74

0.65

Vickers Hardness (kg/mm2)

1

0.3

0.31

0.31

0.26

0.45

0.84

0.75

Dielectric Constant (k)

1

0.77

0.71

N/A

0.83

0.41

0.98

0.87

Refractive Index (n)

0.99

0.85

0.85

0.85

0.85

0.81

1

0.97


As investors, what does all this mean?

GLW's management stated on their earnings call discussing Q4 2013 results, "Specialty materials sales for the quarter were down 29% year over year and below our expectations. As you'll recall, Gorilla Glass sales in Q4 of 2012 were very strong, as device manufacturers prepared for 2013. As 2013 unfolded, it became apparent that some of the 2012 Q4 strength created an inventory overhang that was with us through most of last year." In my book, "inventory overhang" translates to lack of demand.

The technology sector has increased by 26.4% in total returns during the past 5 years. With this sort of growth mobile user traffic will be driven towards the most reliable product. If one company offers a lifetime guarantee on a scratch-free display, a customer is more likely to choose that over simple Alkaline Earth Boro-Aluminosilicate (Corning® glass).

GTAT has crunched some numbers which infer that there is roughly a 12% chance that a smartphone display will break during its first year of use. Sapphire's physical properties are most capable for handling this problem. GTAT's utilization of this valuable gem has reflected light on its financials, demonstrating a growth of more than $700 million in revenue from 2004-TTM. In the past year, the semiconductors industry and the S&P 500 demonstrated total returns of 20% and 25%, respectively. GTAT alone demonstrated a total return of 281%, surpassing both the industry and the S&P 500. Let's join APPL and MSI in acknowledging this innovation for the time being, and reap some profit while we can.

Source: ASF Sapphire Glass Displays From GT Advanced Technologies Offer Improved Durability And Confidentiality