Apple's Sapphire Factory May Hint at Big iPhone 6 Plans

While the market continues to view Apple's future dubiously, Apple seems to be investing in production as if demand for upcoming products will be robust.

Apr 5, 2014 at 2:40PM

"Big," of course, requires context. In Apple's (NASDAQ:AAPL) case, big is enormous -- even unprecedented in many cases. It's this sort of big that describes how things are looking in Arizona at Apple's new Sapphire factory in conjunction with GT Advanced Technologies (NASDAQOTH:GTATQ).

If there were any doubts Apple's plans with Sapphire were conservative, there shouldn't be any today. A handful of construction companies are now apparently bidding on a potential expansion for the factory to boost output even further, according to AppleInsider.

Sapphire crystal?
For those that haven't been following the Apple rumor mill, the world's largest tech company took the Street by surprise when it announced last November that it was purchasing a vacant factory for a sapphire glass manufacturing plant in Arizona. While it's not certain that Apple plans to use the sapphire in iPhone displays, most speculation points to its potential use in the iPhone 6. There's also been speculation it will be used in Apple's rumored iWatch.

Iphone

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

Apple's main iPhone display supplier today is the same company it started with when it launched the iPhone in 2007: Corning, the maker of the durable and increasingly thinner Gorilla Glass. While sapphire glass is known for its superior resistance to scratches, Corning has argued several times that the cons for the crystalline form of aluminum oxide as a display outweigh the pros when compared to its Gorilla Glass.

Apparently, however, Apple and GT Advanced have confidence in the new technology for upcoming Apple products given the extent of the project. Matt Margolis, an analyst who follows sapphire technology closely, estimates that the factory's orders for equipment imply capacity for 100 to 200 million sapphire iPhone displays per year.

The expansion
But 100 to 200 million displays per year may only be the beginning. AppleInsider has said that it has confirmed with "people close to the project" that there is a proposed expansion that may boost production even further. It's becoming increasingly obvious that Apple has some pretty major plans for sapphire glass. In the past twelve months, Apple only sold about 153 million iPhones, so production plans for capacity beyond 100 to 200 million displays per year is relatively impressive. Is Apple planning to replace its reliance on Corning as a display supplier for iPhones entirely? Even more, is Apple planning to use sapphire glass in multiple product lines?

Even more, it looks like production has already begun in the factory. Though the plant is still under construction, Apple Insider author Mikey Campbell says "the plant is powered by a massive array of temporary generators and is already churning out product."

For Apple shareholders, these optimistic sapphire glass plans are a good sign. And even if the proposed expansion doesn't pan out, plans for the factory are already at the levels of current annual iPhone sales. With the combination of big investments in future production of new technology and continued aggressive share repurchases, it's clear Apple management doesn't project a bearish storyline for the demand for its products in the coming years.

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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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