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GT Advanced Technologies, Inc. Message Board

  • mungee24 mungee24 Jan 10, 2014 12:03 AM Flag

    6 reasons it's sapphire

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    Nigam Arora, Contributor
    I seek change that creates investment opportunities for my readers FULL BIO
    INVESTING 11/18/2013 @ 1:49PM |84,546 views
    Sapphire Screen For iPhone 6 Could Be A Real Gem
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    Apple loves sapphire. The iPhone 5S has a sapphire cover over the fingerprint reader and also over the camera. Recently, Apple announced a multi-year agreement with GT Advanced Technologies (GTAT) to produce sapphire on a large scale at an Apple facility in Arizona.

    Under the agreement, Apple is advancing $578 million to GT and GT will employ over 700 people at Apple’s Arizona facility to manufacture sapphire. The investment, although puny compared to the cash hoard atop which Apple sits, indicates to me that Apple is doing more than contracting with GT for camera covers and quite likely moving forward to device screens made of sapphire instead of glass.

    This sapphire is not the same as naturally occurring sapphire gemstones, but a man-made version. Aluminum oxide is melted in specialized furnaces. When liquid aluminum oxide is allowed to cool slowly, it forms a large crystal. The sapphire crystal is cut to form screens.

    In analyzing sapphire, it is important to understand that in theory sheets much thinner than a human hair can be cut from the crystals. New technologies are being developed to make it commercially possible. A human hair ranges from 17 to 181 microns (millionths of a meter). In comparison, most glass screens on mobile phones are of the order of a millimeter (thousandth of a meter). For reference, take a look at the fingerprint sensor that is built in the home button of the iPhone 5S. The Touch ID sensor is only 170 microns thin.

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    In comparing the cost of sapphire to Gorilla Glass, it is important to not make the mistake of comparing the cost of Gorilla Glass which has been produced in large volumes for a while with the cost of sapphire screens which have been produced in very small quantities so far. In volume production, Gorilla Glass cost is $2 to $3 for a mobile phone screen.

    In small quantities a sapphire screen cost is $20 to $30. However, as volume production of sapphire screens pick up, the cost in volume will be only three to four times the cost of glass. Further, since sapphire is harder, a thinner sapphire sheet can be used compared to glass. Within certain limits, reducing the thickness of the sapphire screen reduces the cost. The cost of a screen can be further reduced by fusing a thin top sapphire layer with a thicker layer of a cheaper material such as glass underneath.

    Here are five reasons why Apple iPhone 6 may have a sapphire screen.

    GT Agreement

    From GT‘s financial projections and conference call, GT projects 2014 revenue of $600 – $800 million. GT expects 80% of the revenues to come from the sapphire segment. GT also expects gross margins from the new business with Apple to be substantially lower than its historical margins.

    My analysis is that Apple may initially procure an iPhone screen that has a sapphire top layer with glass underneath for about $10. This number is derived based on furnaces from GT that allow growth of larger crystals that reduce cost, fusing a few micron top sapphire layer with an underneath layer of glass, and low gross margins that GT is accepting in return for large volume from Apple and artificially low cost of capital for GT because of financing from Apple. I have an investment in another sapphire company, have also previously recommended a sapphire company in my Arora Report newsletter, and I’m actively on the hunt for more sapphire related investments. In this process, I have gathered a substantial amount of data.

    GT has told us that in 2014 its sapphire revenue may be as much as $640 million. Some of this projected revenue will come from GT’s existing non-Apple sapphire business that is primarily dedicated to LEDs and specialty industrial materials. In qualitative terms, Apple may generate about $600 million for GT. At $10 a screen, this equates to 64 million sapphire screens in 2014. This kind of volume is plausible only on an iPhone 6. Apple may use sapphire on an iWatch but given the small screen size of a potential watch like device, the only reasonable inference from Apple’s agreement with GT is that Apple is getting ready to use sapphire screen on iPhone 6 or a high end Apple phone that may be named something different.

    Could the GT contract be simply for production of existing needs for camera and fingerprint scanner covers? The answer is an unequivocal “no.” The answer lies in the projections which GT has provided. The cost of sapphire depends on the area and thickness of the cover. The thickness of covers in existing iPhone application is only a few microns and the area is obviously very small. These applications at best will consume only a very small fraction of the volume that GT is preparing for most likely less than 5% of the capacity.

    Almost Unbreakable

    Sapphire is almost unbreakable. Traditionally, it has been used as a substitute for glass on armored military vehicles. If Apple can claim that screens on its devices are nearly unbreakable, it will get a leg up over the competition such as Samsung.

    Scratch Resistant

    Among natural materials, only the diamond is more scratch resistance than sapphire. Imagine an Apple advertisement showing a user trying to scratch an iPhone screen with a key but unable to do so. Such an advertisement will go a long ways towards countering those who claim that Apple is no longer innovating.

    Thin Sheets

    Using a diamond coated wire, large sapphire crystals can be cut into thin sheets, much thinner than the iconic Gorilla Glass from Corning (GLW). Gorilla Glass is the standard screen for high end smartphones these days.

    Layers

    Apple has applied for a patent to use a laminate structure of sapphire layers to form a screen. Here is the abstract of the patent application, “Various sapphire and laminate structures are discussed herein. One embodiment may take the form of a sapphire structure having a first sapphire sheet with a first sapphire plane type forming the major surface and a second sapphire sheet having a second different sapphire plane type forming the major surface. The first and second sapphire sheets are fused together to form the sapphire structure.”

    An interesting embodiment is fusing an outer sapphire layer with an inner glass layer. This cuts down the cost, but still provides the scratch resistance and durability of sapphire. In my analysis, this embodiment is likely to be commercialized. In addition to cutting down the cost, this embodiment has another advantage that it will reduce the weight of the screen; sapphire is heavier than glass and the emphasis of mobile device manufacturers is to reduce weight.

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