Apple Bets Big on the Future of Sapphire Materials

Improved sapphire technology has been coming for years and GT Advanced Technologies (NASDAQ: GTAT  ) said demand would only be a matter of time. Today, that potential looks like a reality after the company announced a supply agreement with Apple (NASDAQ: AAPL  ) , which will begin using more sapphire in future products.  

Based on the reaction today, investors are more than willing to overlook a terrible third quarter with the hope that Apple will be the first of many companies to adopt sapphire technology in electronic devices. After all, the future is what's really exciting in the sapphire world right now.

Third quarter by the numbers
First, GT Advanced Technologies reported third quarter earnings, which showed continued deterioration in its business. Revenue was just $40.3 million in the quarter and net loss was $38.1 million, or $0.31 per share.

Full-year revenue is expected to be $290-$320 million with a gross margin of 30%-32%, and a non-GAAP loss of $0.40-$0.50 per share. The good news is that the Apple deal is expected to change all of that. Next year's revenue is expected to be $600-$800 million and gross margins will fall to 25%-27%, mostly due to lower margins on Apple supplies. But who cares about a small decrease in margins if there's going to be a big increase in sapphire sales?  

The deal with Apple changes everything
Normally, GT Advanced Technologies sells equipment that's then used to make photovoltaic modules, LEDs, or other products. With Apple, GT will own and operate the ASF furnaces and other equipment at an Apple facility in Arizona.

This wouldn't be possible without an infusion of cash, so Apple has made a prepayment of $578 million to GT Advanced Technologies, which will be reimbursed between 2015 and 2020. This is a long-term bet that sapphire material will be the future for Apple's devices and GT is one of the big winners as a result.

Why Apple and why now?
The question you may be asking is why Apple would want to use sapphire products on the iPhone and potentially the iPad? The answer has to do with the superior physical properties sapphire can create over existing products, including Gorilla Glass.

According to GT Advanced Technologies, sapphire is nearly as durable and scratch resistant as diamond and it's more dense and stronger than Gorilla, Dragontrail, or Xensation Glass. In theory, it should be almost impossible to scratch your iPhone or break the cover glass with anything less than a touchdown spike.  

The future of materials manufacturing is here
This is the first major sapphire product deal for GT Advanced Technologies but investors shouldn't think it will be the last. Sapphire can be modified to make a variety of products with varying physical properties, making it perfect for new electronic devices.

I think we're scratching the surface of the industry's potential and Apple is on the leading edge of growth in sapphire use.

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Read/Post Comments (6) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On November 05, 2013, at 1:54 PM, twolf2919 wrote:

    Man, talking about overusing superlatives "Apple Bets Big...." - they're investing less than a billion dollars to assure a steady supply of sapphire. That's chicken feed for Apple - especially since they're getting it back!

    Your statement "...or break the cover glass with anything less than a touchdown spike..." is just plain wrong. Sapphire and Gorilla glass both still shatter pretty easily - with sapphire shattering more easily than Gorilla Glass. The only superior quality sapphire offers is scratch resistance.

  • Report this Comment On November 05, 2013, at 3:15 PM, teddylevy wrote:

    I own both GTAT and GLW, and you're EXACTLY right in your statements, twolf. The article is full of misinformation. Shame on you, Motley Fool.

  • Report this Comment On November 05, 2013, at 3:32 PM, hoghunter1 wrote:

    There was an article in a material science journal that I read stating that crystal laminates are in the works and were virtually fracture proof.

  • Report this Comment On November 05, 2013, at 5:22 PM, GirlsUnder30 wrote:

    Here's a little more information on the Apple GTAT deal:

    http://caps.fool.com/Blogs/about-the-apple-gtat-deal/887120

  • Report this Comment On November 05, 2013, at 5:22 PM, GirlsUnder30 wrote:

    Here's a little more information on the Apple GTAT deal:

    http://caps.fool.com/Blogs/about-the-apple-gtat-deal/887120

  • Report this Comment On November 05, 2013, at 5:23 PM, GirlsUnder30 wrote:

    Sorry, double post, please delete one.

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