Corning (NYSE: GLW ) investors have remained on edge amid reports of the iPhone switching from Gorilla Glass to sapphire glass covers. Other reports suggests that competing top products could also be making the sapphire switch. How does this news affect glass maker Corning and sapphire-related companies like GT Advanced Technologies (NASDAQ: GTAT ) and Rubicon Technology (NASDAQ: RBCN ) ?
Here comes sapphire!
Earlier this year, reports surfaced of an iPhone initiative that featured sapphire cover glass instead of Corning's Gorilla Glass, which is currently used on iPhones and many other top smartphones. While Gorilla Glass is known for being durable and thin, sapphire cover glass is even thinner, stronger, and more scratch-resistant. However, it is also more expensive, used only on specific areas like the iPhone home button and for camera lens covers.
GT Advanced sells and operates advanced sapphire furnaces that produce sapphire materials. Last year, Apple and GT Advanced signed a major contract for GT Advanced to operate these furnaces in one of Apple's facilities. The iPhone maker gave GT Advanced $578 million up front, which further added to the notion that Gorilla Glass might soon be replaced.
In addition, there are other reports that popular smartphones like Samsung's Galaxy will soon shift to sapphire. Reportedly, Samsung has asked sapphire wafer makers like Rubicon to submit product samples.
What's this mean for Corning?
While Corning doesn't report revenue by unit, device, or brand, a closer look at how Corning creates sales will provide an idea of what to expect in the event of an industrywide shift from Gorilla Glass to sapphire. In Corning's last quarter, it created total revenue of $2.39 billion, yet Gorilla Glass accounted for just $261 million.
Display technologies are far more significant for Corning. LCD glass accounted for $1 billion of total sales, with growth of 58%, year over year. This growth occurred after Corning gained full ownership of an LCD manufacturing subsidiary of Samsung in Korea last year.
Gorilla Glass still accounts for more than 10% of total revenue. However, that percentage is expected to rise in future quarters as inventory problems improve and demand increases; Corning expects the Gorilla Glass segment to see sales growth of 20%-25% over the last quarter. Gorilla Glass is important to Corning, and at 18 times earnings the stock is highly connected to the segment.
The sapphire beneficiaries
If sapphire is used in the iPhone, there's a good chance it will force competing devices to make the switch, which would also lower the costs of sapphire due to increased scale. GT Advanced and Rubicon are two different types of companies that could both benefit from this transition.
GT Advanced's core business lies in solar with crystal growth equipment and solutions. Its electronics industry segment has been waiting in the background for demand to increase with sapphire solutions. Its stock has soared nearly 400% over the last year, with the iPhone news fully baked into its valuation. However, if new deals come about -- or if more companies explore sapphire and ultimately launch it as a replacement to Gorilla Glass -- there could be even larger long-term returns.
Meanwhile, Rubicon is off more than 40% from its 52-week high as the sapphire wafer maker has yet to benefit from an increase in demand. That said, the company's revenue is expected to increase 56% this year as developmental costs transition to production revenue.
The only problem is that sapphire costs remain high, and Rubicon's large inventory has led to unexpected charges for the company, in part due to a rise in samples like the ones with Samsung. Like GT Advanced, if large-scale production becomes a reality, then Rubicon has a lot to gain in this space.
Much of what happens next depends on the actions of TV, tablet, and smartphone manufacturers. While this creates risks, the writing on the wall suggests that sapphire is a market that will soon grow enormously, and that there will be many stocks to rise and fall due to this transition.
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