Corning (NYSE:GLW), which supplies its Gorilla Glass for Apple's iPhones, is still trying to wrap its mind around why Apple (NASDAQ:AAPL) will be using sapphire crystal in some of its future products. While the glass may be more scratch resistant, it has a number of disadvantages to Gorilla Glass -- problems Corning is happy to elaborate on. Corning's criticism prompts an important question: Is Apple risking too much by shifting some of its display production to sapphire crystal?
Sapphire versus Gorilla Glass
Apple CEO Tim Cook recently confirmed, at Apple's annual shareholders meeting, that the sapphire glass will be used in a "secret project" the company is working on. The new sapphire Arizona plant, operated by GT Advanced Technologies (NASDAQ: GTAT), will be used for both "extensions of what we're already doing" and for "things you can't see," Cook said.
This week, Corning senior vice president Tony Tripeny listed a number of problems he sees with sapphire during a question-and-answer session at Morgan Stanley's Technology, Media & Telecom Conference.
- Sapphire is about 10 times more expensive.
- It's about 1.6 times heavier.
- It's not environmentally friendly.
- It takes about 100 times more energy to generate Sapphire than Gorilla Glass.
- It transmits less light, which leads to dimmer devices or shorter battery life.
- It breaks under less pressure than Gorilla Glass.
While Corning acknowledges that sapphire is scratch resistant, Tripeny was clear that the problems outweigh the benefits.
"So when we look at it, we think from an overall industry and trend that is not attractive in consumer electronics," Tripeny said.
Further, Tripeny expanded on sapphire crystal's poor operational and manufacturing potential:
The formation takes about 4,000 times longer than Gorilla Glass at a significantly higher melting temperature. Its hardness makes machining more difficult and costly. Then the cost per unit increases exponentially because when you have defects in boundaries in the crystal growth process, you essentially cut them out. And so unlike glass, where we have developed technologies so that we can have [a] very large pristine pieces of glass, when you have that on crystals, what you end up doing is always having a yield issue. So it is really those items that make things more expensive.
Despite Corning's criticism, Apple is bent on using sapphire in future products. Based on GT Advanced's purchases of 518 sapphire furnaces and chamber systems and another 420 machines on order, analyst and sapphire expert Matt Margolis predicts the Arizona plant could produce around 100 to 200 million five-inch sapphire displays per year.
A changing competitive landscape
As one of Corning's biggest customers, a shift toward sapphire glass could have major competitive implications on the entire display industry. Producing sapphire displays at a large enough volume to serve Apple may spur new cost savings and innovation in sapphire that make it a viable alternative for other manufacturers besides Apple.
In one example of possible innovation that could lead to a shift toward sapphire displays, as 9to5Mac author Ben Lovejoy pointed out, GT Advanced recently "acquired a solar panel company that developed a new technique for slicing hard materials very thinly using an ion particle accelerator. ... If the same technique can be applied to sapphire, and if it could be combined with a sapphire laminating system already patented by Apple, the cost could plummet."
But even if Apple's arrangement with GT Advanced leads to sapphire scale and innovation, will the advancements be enough to overcome Tripeny's exhaustive list of disadvantages to sapphire crystal?
With the limited knowledge we have on the matter, Apple's bet on sapphire crystal appears huge and risky. With so many advantages to Gorilla Glass, investors shouldn't speculate on any outcomes in this glass war and, instead, wait to see how things play out before altering any investment thesis for stocks meaningfully related to this changing competitive landscape.