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Summary

  • The newest finished good being requested for production from Mesa, AZ is related to sapphire for jewelry and is a strong indication that GT is manufacturing sapphire for the iWatch.
  • GTAT and Apple have requested approval to expand the existing scope of authority for Project Cascade’s facility to include additional components for use in production and additional finished goods.
  • The economic impact of the latest request is set to benefit the City of Mesa and the entire state of Arizona.

According to the latest FTZ Application filed on July 16, 2014 Apple Inc. (NASDAQ:AAPL) and GT Advanced Technologies (GTAT) are requesting an expansion of the existing scope of Project Cascade to include additional components for use in production as well as additional finished goods that will be manufactured from the facility.

This Production Notification notification will expand the existing scope of authority for Project Cascade's facility to include additional components for use in production and additional finished goods that will be manufactured at the facility, which will benefit the City of Mesa and the entire State of Arizona.

The Interim Production Notice (NYSE:PN) is being made to expand the scope of the Production Authority already approved by the FTZ Board. The Interim PN request for expedited approval has "an aggressive go-live timeline of August 2014."

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July 16th, 2014 Production Notification Request Highlights (Source FTZ Application)

Project Cascade is currently approved to conduct high-tech manufacturing of intermediate goods/components for consumer electronics under FTZ Board approval number S-5-2014, on March 19, 2014. The final finished merchandise will primarily be exported, but other intermediate items produced in the production process may be shipped domestically from the Zone.

This request is to expand that scope of authority to include additional components for use in production and additional finished goods that will be produced at the facility. These items are within the same overall scope of the original request, and are along similar product and HTSUS lines of product.

HTSUS Number indicates that the "additional finished good" being requested is Sapphire for "Jewelry."

As you can see below the Foreign-Status Components list now include 2 sapphire items with unique HTSUS numbers. Source FTZ Application)

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According to the Harmonized Tariff Schedule of the United States each HTSUS number represents a specific sapphire good.

Sapphire HTSUS No. 7104.90 - Sapphire: (7104) Synthetic or reconstructed precious or semi-precious stones, whether or not worked or graded but not strung, mounted or set; ungraded synthetic or reconstructed precious or semi-precious stones, temporarily strung for convenience of transport: (.90) Other (Source Harmonized Tariff Schedule).

This code was also present on the December 17th, 2013 Interim Production request made by Apple and GT Advanced Technologies (Image Source).

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However, the latest Production Notification request made on July 16th, 2014 has an additional and new sapphire good being requested for expedited approval "Sapphire HTSUS No 7116.20."

Sapphire HTSUS No. 7116.20 Sapphire: (7116) Articles of natural or cultured pearls, precious or semi-precious stones (natural, synthetic or reconstructed): (.20) Of precious or semiprecious stones (natural, synthetic or reconstructed): Articles of jewelry:(Source Harmonized Tariff Schedule).

Apple's iWatch is expected to support a sapphire cover screen and widely expected to be a fashionable product that belongs under the "jewelry" umbrella.

Key Takeaways

The latest Production Notification request from Apple and GT Advanced Technologies confirm that the Mesa, AZ sapphire plant will be producing not one but two key sapphire components for Apple. The two components are distinct and different.

The magnitude of the request appears to be significant. The request indicates that this approval "will benefit the City of Mesa and the entire State of Arizona." A city and state are directly impacted by job creation and sales tax. I expect this latest component to be a boon on both levels.

The introduction of sapphire crackle into the sapphire growing process will lead to improved boule quality, which will lead to less defects and higher useable sapphire yields. Previous reports have indicated yield issues coming from Mesa and this latest request provides even more concrete evidence that GT has addressed the sapphire yield issues in an effort to maximize yield and improve overall production costs.

One component is sapphire finished goods not suitable for jewelry and the other sapphire finished good is jewelry specific. The first component is sapphire for the manufacturing of sapphire cover screens for the iPhone 6 and the second is sapphire cover screens for Apple's upcoming iWatch.

The "aggressive" go-live target of August 2014 always fits well into GT's most recent guidance issued on August 5th that the company, "was starting to ramp up our production and move into volume manufacturing" (Source Seeking Alpha) GTAT 2014 Q2 Conference Call Q&A).

The latest Production Notification requests are the clearest evidence yet that GT will be growing sapphire from the Mesa, AZ facility for Apple's iPhone 6 and iWatch.

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