An article out of the South China Morning Post may breathe new life into shares of GT Advanced Technologies (NASDAQ: GTAT) as speculation grows that Apple (NASDAQ:AAPL) may be using sapphire displays in two new iPhones. As I wrote last week in "Betting the Ranch on the Apple Deal," GT has taken on a huge amount of debt and is changing its business model to be a sapphire producer rather than just a furnace manufacturer. If this bet pays off, it could be very lucrative for the company and shareholders.
Yesterday, AppleInsider published an article citing Asian sources that indicated the sapphire screen price was still too high and would be cost prohibitive in the iPhone 6. On the surface it seemed strange because the price difference in Sapphire vs. Gorilla Glass a year ago was only $27. If the massive scale that GT is throwing behind this project cuts the difference in half, the incremental cost would only be $13.50, or 2% of the wholesale price of the phone. As long as the additional cost of fitting the different screens is negligible it should not have been a deal breaker. However, this didn't stop the market from selling GT Technologies off by 7%. The source behind AppleInsider however, is a gaming website that may not be as reliable.
This morning, The South China Morning Post published an article stating that Apple will be offering "the iPhone 6 in two sizes -- 4.7 inch and 5.5 inch -- in September" and both with full sapphire screens. This would be more in line with Apple stocking the Mesa manufacturing facility with enough sapphire generating equipment to ""be producing as much as two times the current worldwide capacity" according to Bloomberg sources.
Results are more important than timing
The timing is not as important as achieving success. If GT gets this off the ground, it could contribute very meaningfully to the bottom line, although to publish an estimate at this stage seems reckless. Apple is known for being a tough negotiator with its suppliers and GT is locked up in an undisclosed number of end markets. If GT is able to apply the IP developed working with Apple to the auto or construction market, then entirely new revenue sources could open for the company.
Corning (NYSE:GLW) has been working with Apple since the original iPhone and this contract loss would be a blow to the company. However, the volume of glass used for an iPhone screen is just a fraction of that used in a 50 inch widescreen TV. Because this product is not subject to scratching or breakage on a daily basis, Gorilla Glass fits the bill for stable applications.
The stakes are high as investors are pushing up the price of GT Advanced on the expectation of future earnings from consumer devices and new end markets. If this article is correct and sapphire screens appear on two new handsets in the next 7 months, it would go a long way toward reducing the risk inherent in GT Advanced shares today.