Seeking Alpha

Apple strikes sapphire furnace/supply deal with GT Advanced

  • The deal, announced within GT Advanced's (GTAT) Q3 report, calls on GT to supply Apple (AAPL) with sapphire via furnaces the former company will own/operate at an Arizona facility owned by the latter.
  • GT plans to employ 700+ people at the facility, and Apple will be providing GT with a $578M prepayment to assist with the efforts. GT will reimburse Apple for the prepayment over five years, starting in 2015.
  • The magnitude of the initiative suggests Apple plans to use sapphire cover glass to protect the displays used in future iOS hardware (perhaps including 2014 iPhones/iPads). Rumors about such a move have been around for a while, heightened by Apple's use of sapphire to protect iPhone camera lenses and the iPhone 5S' home button.
  • Assuming Apple uses GT's sapphire with iOS hardware displays, the deal is a negative for Gorilla Glass supplier Corning (GLW), particularly since it could encourage other mobile OEMs to embrace sapphire and improve its economies of scale. Sapphire is thinner, stronger, and more scratch-resistant than current cover glass solutions such as Gorilla Glass, but is also much costlier.
  • On account of the Apple deal, GT has "accelerated the development of its next generation, large capacity ASF furnaces." The company expects these efforts to aid its efforts to offer next-gen furnaces to traditional customers in other market segments (LEDs, industrial manufacturing, etc.).
  • Update: Arizona's governor's office announces Apple will be building a new facility in Mesa, AZ. 1.3K construction jobs will be created to go with GT's 700+ manufacturing jobs. Corning is now down 1.2% AH.
Comments (30)
  • Sapphire is thinner, stronger, and more scratch-resistant than current cover glass solutions such as Gorilla Glass, but is also much costlier.

     

    When you're managing the premium tier in a category, this is what you do to continue to add value. Apple products should have the best of everything and then they pass that cost onto the consumer. Do not ever say no for the consumer. Provide excellent products and services and know that cost is not the primary driver for this tier.

     

    Let Samsung use Gorilla Glass in its continued world domination of market share while Apple owns the share that matters most, profit share.

     

    Steve Jobs would be proud of this move.
    4 Nov 2013, 04:49 PM Reply Like
  • Sapphire is costlier in current volumes. Once volumes go up (hello Apple), prices should be closer to current glass.
    5 Nov 2013, 01:40 AM Reply Like
  • Samsung owns majority shares in Corning. They co-developed the latest flexible, bendable, scratch resistant Willow Glass, that is made by combining Samsung's Cheil Chemical Infino Brand PC Polycarbonate w/ Gorilla Glass for a first of kind unbreakable screen glass. Infino PC is the same polycarbonate used in making Bugatti Veyron's Removable Roof. Which isn't exactly cheap either!!!

     

    There is not one luxury car maker that isn't using Cheil Industry's Plastics for better durability and now used in Samsung YOUM Flexible Screen Technology!
    5 Nov 2013, 03:43 AM Reply Like
  • Apple continues to pull away from the pack in quality.
    4 Nov 2013, 04:49 PM Reply Like
  • I bought GTAT back in April for around 3.60 and sold for a decent profit. Should have held some of it and not backed up the truck on Nokia. Although Nokia is doing very well currently also. I still would have liked to had equal numbers in each company. Hind sight is so clear.
    4 Nov 2013, 04:53 PM Reply Like
  • It is good to hear that Apple put this facility on US soil. Perhaps this means that, like Google, they will start assembling some devices in america in the near future.

     

    I also wonder what this means to sapphire wafer producers like RDCM? It seems Apple is kind of cutting the wafer maker out by having the capital equipment manufacturer do the actual wafer manufacturing as well. This seems very bad for RDCM, but RDCM may benefit, if Samsung jumps on the sapphire bandwagon.
    4 Nov 2013, 04:55 PM Reply Like
  • PM - could you explain that further please? I'm long RDCM as well and considered their services very important in the supply chain. Could GT Advanced just do the exact same thing as RDCM? And dumb question but what exactly is a sapphire wafer?
    4 Nov 2013, 05:04 PM Reply Like
  • I am very sorry Doyle, when I said RDCM, I meant Rubicon (RBCN). Just a mistake, I have too many small tech companies swirling in my mind.

     

    I did not mean to scare you, you may continue in your blissful ignorance in what a sapphire wafer is.
    4 Nov 2013, 05:18 PM Reply Like
  • Sapphire is aluminum oxide, the purer the better for clarity, strength, scratch resistance, and thermal protection. Sapphire is the second strongest material in the world after diamond.

     

    The keys to successful man-made sapphire production are absolutely consistent power, great furnace technologies, and skilled production techniques. I know Rubicon has those (toured one of their plants myself) but I do not know about GTAT's skills. Apple must think so to invest in their equipment.

     

    GLTA, TK

     

    Long: RBCN
    5 Nov 2013, 09:21 AM Reply Like
  • How do we know that it isn't just camera covers? A few hundred million IOS devices a year would be a lot of cover glass. 700 people doesn't sound like enough to do that. It would take at least six inch wafers for phones! Any thoughts?
    4 Nov 2013, 05:01 PM Reply Like
  • Talking about GLW - they have the cash, unfortunatelly not the vision and the product for/of the entire market.

     

    Making a bid for GTAT, anyone?
    4 Nov 2013, 05:06 PM Reply Like
  • I picked up some GTAT
    5 Nov 2013, 04:23 AM Reply Like
  • So, Apple leads the way from Gorilla Glass to Godzilla Glass...
    4 Nov 2013, 05:22 PM Reply Like
  • Shappire is common in expensive watches (RADO for example), why nobody is connecting it with the future IWatch?
    4 Nov 2013, 06:07 PM Reply Like
  • bingo. this is not for phone screens which need to be more resistant to cracking, not scratching.
    4 Nov 2013, 08:55 PM Reply Like
  • Sapphire is, presently, too expensive for phone screens. Its used to protect the camera lens, and for the fingerprint sensor.

     

    Now it would be a pretty dramatic bit of proprietary advantage if Apple were able to get the cost down to use for screens, but whether that's possible is unknown.
    4 Nov 2013, 09:24 PM Reply Like
  • @Northwest Investor

     

    You mean maybe laminate the sapphire with normal glass so a thin layer of scratch resistant sapphire can be used on top? That seems it would reduce cost by having glass be a majority and only needing a small thin layer of sapphire. Patent published September of this year by Apple:

     

    http://bit.ly/1b1O4lf

     

    "[0008] Still another embodiment may take the form of a method of manufacturing a laminate structure. The method includes lapping and polishing a first side of a sapphire sheet and adhering the sapphire sheet to a glass sheet. The method also includes lapping and polishing a second side of the sapphire sheet and chemically strengthening the glass sheet.

     

    [0009] Further still, another embodiments may include the use of a sapphire outer surface with a glass inner surface for the display of a consumer electronics device, where the two sapphire surfaces are laminated together with the glass providing support for the display and the sapphire providing scratch resistance and durability advantages. "

     

    Seems they have their bases covered on different implementations as well.

     

    Link for the USTPO document (same document I think):

     

    http://1.usa.gov/1b1O4lj

     

    I'm long. Very long and overweight. Cost basis at 4.8 for 1.5k shares and another 4.5k in options split between long and short term (December) contracts. To me this pairing was incredibly obvious, especially with what we know about the IPhone 5S and wish I just had the guts to put even more than I already had done. Can't wait to see what tomorrow brings on this one.
    4 Nov 2013, 10:27 PM Reply Like
  • Saphire is not inherently expensive - it's just aluminum oxide in crystal form. The cost is associated with processing the material into that crystalline form. If Apple can apply a combination of technology (crystal growth and slicing) and economies of scale, sapphire should be affordable as a screen material, not just as lens and fingerprint button covers.

     

    And this is more important than many folks seem to think. You see, sapphire isn't just hard and scratch resistant, sapphire is tough. I have been involved in building some sapphire 'structures' and have observed sapphire to be much tougher than glass. Thin sapphire plates can, for instance, be bent as you might use a razor blade and used to scrape unwanted material from a surface without breaking. This is exactly the kind of toughness that could allow Apple phones and tablets to become virtually immune to screen cracking, even when dropped...

     

    A "drop proof" screen in turn would allow phones and tablets to be used routinely without covers or cases. And this will really make a difference as devices get thinner and lighter. I just purchased an iPad Air - weight 1 pound. I'm looking for a case, and there seems to be little out there in the way of protective cases or covers that weigh less than 8 ounces. That means a 50% weight increase to ruggedize a tablet I just bought in large part because it is exceptionally light. Wouldn't it be great if a future very thin, very light iPad didn't need a case to protect it from scratches when put into a backpack, or from destruction when making an airborne arrival on the sidewalk.

     

    And, it looks like Apple is aiming to have exclusivity in this area. Oh well, I suppose the stock will just go up that much more...
    6 Nov 2013, 04:27 PM Reply Like
  • So does this also mean that the iwatch schedule will be push even further along to maybe Q4 of fy14? Factory ramp up can take 1-2 qtr.
    4 Nov 2013, 09:49 PM Reply Like
  • Sapphire glass is primarily used in watches - I guess this indicates the future iWatch is still a ways out....
    5 Nov 2013, 01:37 AM Reply Like
  • Sapphire is not glass.
    5 Nov 2013, 06:01 AM Reply Like
  • I just hope (and assume) that Apple makes the connection between Hyperion "slicing" and the lamination patents discussed by MattA.

     

    In the call, they said they didn't expect Hyperion to be ready for market until 2015, but some Apple muscle could probably help push that forward and make the dream of affordable cover layers of sapphire even closer to reality.

     

    I am a little concerned about what the exclusivity arrangements and patents could mean for broader adoption of sapphire throughout the industry, since we haven't gotten many details on that.

     

    Also, I just have to say for the Trekkies out there, how cool it is to see Transparent Aluminum becoming a reality.
    5 Nov 2013, 02:16 AM Reply Like
  • I just hope (and assume) that Apple sees the potential for Hyperion "slicing" of sapphire to complete the patent discussed above by MattA.

     

    In the call, they talked about Hyperion being well over a year out still, but some apple muscle could progress that and make laminent screens even more doable.

     

    The only thing that concerns me slightly about this deal is the vagueness of the exclusivity. Not sure how that will effect sapphire adoption in the rest of the industry.

     

    I also just have to say, for the Trekkies out there, how exciting it is to see the development of transparent aluminum before our eyes.
    5 Nov 2013, 02:16 AM Reply Like
  • Lengthy rebuttal by corning on saphire vs gorilla

     

    http://bit.ly/1bwaKxP

     

    Saphire might work for buttons and lenses or maybe thin layers on top of glass but certainly does not seem to have the properties required for full cover glass for phones and IPADS. Too heavy, too brittle, too thick, too expensive, and last but not least too unclear.

     

    With corning ready to launch anti reflective and anti microbial. I don't see saphire replacing gorilla any time soon.
    5 Nov 2013, 05:05 AM Reply Like
  • The reaction to this Apple news is greatly exaggerated by the price move. Apple is basically securing supply for the future and is trying to create jobs in the US. Sapphire is not going to replace Gorilla Glass. This does suggest that demand for sapphire is increasing while the cost to produce sapphires is decreasing.
    5 Nov 2013, 05:38 AM Reply Like
  • Once again much ado about what is in fact a VERY small investment by Apple in this technology. However they intend to use sapphire, this investment is a yawn!
    5 Nov 2013, 08:03 PM Reply Like
  • An investment of more than a half billion dollars ain't all THAT small...
    6 Nov 2013, 04:29 PM Reply Like
  • Apple could have bought all of Rubicon (current market capitalization $215 million) and had what I believe is the lowest cost, most technologically advanced sapphire producer in the world. And they would have immediate supply in large sizes for larger applications. Go figure.

     

    GLTA, TK

     

    Long:RBCN
    7 Nov 2013, 09:38 AM Reply Like
  • Samsung will make the change to sapphire I bet once GT has paid off Apple. Keep in mind that Samsung is still involved in the iphone manufacture chain.
    12 Nov 2013, 03:07 PM Reply Like
  • I doubt Samsung will want to buy too much from GTAT, though, since they have such strong support for and by Apple. I think this (adding lots more sapphire to handsets) is a pretty good sign for RBCN.
    13 Nov 2013, 08:39 AM Reply Like
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