How Apple's billion dollar sapphire bet will pay off

Changing a rare gemstone into a mass market material for future iPhone, iPad and iWatch offerings

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In any case, Apple may be perfectly willing to absorb the extra cost. “We believe that when Apple introduced the first iPhone with a Gorilla Glass display cover, the cover cost was then over $10 per unit,” Virey says. “It shows that when Apple believes in a new technology or material, they’re willing to take a hit on the bill of materials costs. Of course, to commit for the long term, there needs to be a convincing cost reduction roadmap somewhere.”

Apart from the economies of scale being realized by the Mesa factory, Apple may be looking to a GTAT technology, acquired in 2012 from Twin Creeks, which will emerge in 2015: Hyperion, an ion-deposition system that embeds a layer of ions just under the surface of a material like sapphire, and then “splits off” (or exfoliates, in GTAT jargon) an ultra-thin slice, which can then be laminated to a much less costly substrate of glass or other material.

Some bloggers and analysts speculated that Hyperion is already, or will be soon, part of the Mesa factory. But GTAT President and CEO Tom Gutierrez was explicit during the February 2014 earnings call that it was not. “Hyperion is not a major contributor to revenues in 2014,” he said. In response to an analyst’s question about Hyperion and the Mesa factory, Gutierrez said, “You’re making a connection of Hyperion to the Arizona project. That’s not a good connection.”

The question of “when?”

Rumored 2014 announcement dates for the “iPhone 6” have included April, May, June, “summer”, September, October, November and December. Historically, there is usually about 12 months between iPhone announcements, which points to September-October if Apple sticks to that pattern.

It is widely predicted, and for many, even expected that at least one 2014 iPhone will be fitted with a sapphire screen that’s larger than the current 4-inch display for the iPhone 5s and 5c. Yole’s Virey is one that believes Apple does plan to introduce this on a new iPhone in the fall of 2014.

But none of the evidence cited for such a belief is conclusive. Virey forecasts 42 million finished sapphire screens by the end of 2014, based on the furnace capacity being installed at the Arizona plant. In the October-December 2013 quarter Apple sold 51 million iPhones. Based on one estimate, about 12 million of those were 5c models, and about 36-38 million were 5s (the rest were 4s and 4 models). [For more on the 5c sales, see “The great 'iPhone 5c is a failure' freakout”] 

Even if the sapphire screens are just for the high-end flagship iPhone, Apple isn’t leaving much wiggle room for inventory adjustments. Ocular’s Massey and Kothapally are skeptical that a sapphire-screened iPhone will appear in 2014.

Apple’s sapphire ambition is immense but realizing that ambition means more than firing up a bunch of new furnaces. It means building a new strategic supply chain from scratch. The raw material requires major upstream investments and adjustments in order to be processed to the quality and yields that Apple needs to make its billion dollar bet payoff.

Everything that points to a 2014 sapphire iPhone can just as easily point to a 2015 sapphire iPhone.

John Cox covers wireless networking and mobile computing for Network World.


Copyright © 2014 IDG Communications, Inc.

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