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

Corning may get one of its biggest customers for another year. But GT Advanced Technologies looks poised to get a contract for Apple's iWatch.

Feb 11, 2014 at 6:00PM

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 (NASDAQOTH:GTATQ) 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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Daniel Sparks owns shares of Apple. The Motley Fool recommends Apple and Corning. The Motley Fool owns shares of Apple and Corning. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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