Apple, Inc. Sapphire Plant to Make Glass for iWatch?

G4Games pointed to a new report from Asian supply chain sources today that asserts Apple's (NASDAQ: AAPL  ) iWatch will be the first Apple device to get a sapphire display. Even more, reports from the Asian supply chain suggest Apple will not be using the sapphire glass in this year's iPhone lineup, mainly due to cost. Shares of GT Advanced Technologies (NASDAQ: GTAT  ) slid this morning on the news. But the implications affect Corning (NYSE: GLW  ) and Apple, too.

But first, why sapphire for the iWatch?

Apple uses sapphire glass to protect the camera in its iPhones and on the home button of the iPhone 5s for Touch ID.

Common sense
The sapphire gemstone has two main advantages compared to other forms of glass -- even Corning's Gorilla Glass. Those advantages are superior durability and scratch resistance. These are obviously two important factors in a glass device that will be worn on your wrist. Not only would broken glass combined with a wrist create a potentially tragic situation, but also a wearable device will arguably be subject to more wear than a smartphone.

Wait! If sapphire glass is so great, why isn't Apple going to use it in the iPhone? After all, Apple purchased a vacant manufacturing building from First Solar and contracted with GT Advanced Technologies to operate a massive plant for sapphire glass. The problem is cost, according to G4Games:

The problem is not necessarily due to low yield (which still is a problem, at least until Apple's Arizon plant will be fully operational), but mainly because fitting a sapphire screen on the next iPhone would make its price skyrocket.

G4Games says Asian supply chain sources believe cost won't be an issue for sapphire glass in the iWatch.

Who is hurt and who will benefit?
Before today's report, there was a lot of speculation that Apple would be using sapphire glass in the iPhone. But with Apple apparently dropping these efforts, GT Advanced Technologies may be taking a massive hit to its planned manufacturing volume for 2014. Corning, on the other hand, will likely benefit -- for now. Apple is one of its biggest Gorilla Glass customers. So, if no sapphire for the iPhone in 2014 means keeping the major customer for even just one additional year, it can have big impacts on the Corning's business. While Apple currently uses small pieces of sapphire glass in the iPhone to protect the camera and on the home button on the iPhone 5s for the new Touch ID, Corning currently provides the glass for the display.

Don't count the iPhone out yet
Like most manufacturing, scale will come with volume as GT Advanced Technologies brings the cost curves to sapphire glass production down over time. So, investors shouldn't expect Apple to be ditching the idea of using sapphire glass in its iPhone for good. Apple has made a significant investment in the glass, suggesting it does have plans to use it in iPhones eventually. Not doing so could not only be a blow to GT Advanced Technologies, but it would be a wasted investment for Apple if reportsthat Apple has bought enough sapphire furnaces and chamber systems to produce up to 200 million 5-inch sapphire displays per year are true.

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Read/Post Comments (5) | Recommend This Article (4)

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 February 11, 2014, at 6:45 PM, lagunab1 wrote:

    I don't buy the latest rumors of the demise of the iPhone Sapphire screen. GTAT guided $600 - $800M revenues in 2014 from the deal. That is a lot more in line with iPhone than with watches and other tiny pieces. January 16 the reaffirmed that same guidance. One has to assume that the sudden change of direction occurred in 3 weeks and was completely unexpected. That is a long shot. I say, the ball is STILL in play until at least Feb. 24 when the next earnings call is from GTAT.

  • Report this Comment On February 11, 2014, at 8:03 PM, GaryDMN wrote:

    What iWatch? They wouldn't need a huge supply of sapphire, for something as small as a watch. I assume the iWatch was made up by the press and the Android community, thinking they beat Apple to a imaginary market, that was based on a rumor. Android vendors would not be so proud, if the world knew they cloned a rumor, but it sure looks like they did.

  • Report this Comment On February 11, 2014, at 11:17 PM, feydgeke wrote:

    I've been in the sapphire industry for more than 10 years and have been following closely this Apple/GTAT. My own analysis leans toward adoption for an iphone cover. But all I can say is that every single day I'm getting an equal number of new "reports" saying "it's for iphone" and "it's not for iphone"...

  • Report this Comment On February 12, 2014, at 9:07 AM, Resphigi wrote:

    Apple made a $600 million investment in GT's sapphire manufacturing capacity and I don't think they did that just to supply a line of watches.

  • Report this Comment On February 12, 2014, at 1:00 PM, jdmeck wrote:

    Why do you assume there is only an iWatch? I expect more than just watches are coming from Apple.

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