Because Apple sells more than 150 million iPhones a year, certain kinds of secrecy surrounding the company’s ubiquitous smartphone have become impossible. One recent example concerns the apparent switch for the upcoming iPhone to sapphire as a screen coating, replacing the thin piece of glass that has been there since 2007. And how do we know this is happening? Last November, Apple paid $578 million to GT Advanced Technologies in Arizona to help it produce lots and lots of sapphire, which is used in high-end watches because it’s so durable and scratch resistant. But what wasn’t yet clear was whether that meant Apple would be taking the big step of covering the whole iPhone screen with it.
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Up till now, Apple has used sapphire only to cover the camera lens and the iPhone 5s fingerprint sensor. And with the rumored iWatch, it seemed possible that GT Advanced was going to make sapphire crystal primarily for that product. By carefully examining GT’s statements surrounding its earnings report, however, we can clearly understand (1) that its definitely making sapphire crystal for the iPhone and (2) the iPhone won’t be out till the second half of 2014, as is normal. This should bury the many rumors of the iPhone arriving in May.
GT Advanced is basically “all in” with Apple for the moment. In order to serve the Cupertino, Calif. consumer electronics giant it’s shifting its business almost entirely to Apple. GT’s revenues cratered from $733 million in 2012 to $299 million in 2013. It expects to do only $20-30 million in the first quarter of this year and not much more in the second quarter. But in the second half of the year, it is looking for $500-700 million for those 6 months alone. There has been a great deal of speculation as to what it would cost to cover an iPhone in sapphire, but 3-4 times the cost of a piece of Gorilla Glass, the super strong material from Corning which runs about $3, has been a common estimate. Throw that estimate into the above and you find yourself looking at something around 50 million pieces, perhaps twice as many.
Given the way supply chains work and a whole host of uncertainties regarding the design of the next iPhone, it’s impossible to say exactly when and how many screen covers GT Advanced would need to make for Apple (Keep in mind that only the new phone would likely use them, whatever model carries over from last year will almost certainly still use glass). But what’s clear is this kind of volume can’t be for an iWatch. Apple might be wildly successful with the watch, but it’s not ordering parts for tens of millions of them. Not yet at least. Oh, and GT is confident that it will cross over $1 billion in 2015. There is only one product that Apple — and GT — can get that kind of confidence around today. And that product is the iPhone.
CEO Tim Cook had once cautioned around reading too much into any one data point in Apple’s supply chain, but in this case that data point is like a giant X on a treasure map. It’s telling us that Apple believes sapphire crystal is both ready for mass production and a meaningful upgrade to any glass-based product out there for protecting the screen on your smartphone. It also suggests the company doesn’t believe that a scratch-resistant plastic is on the near-term horizon, which has implications for how much can be done with foldable and curved phones. (Today’s curved models use glass. A truly folding phone would need an alternative, at least on the hinged section.)
Most importantly, though, Apple hasn’t prevented its supplier from telegraphing the timing of its revenues. And that timing means the next iPhone is due about a year from when we saw the last one. There’s some intrigue in the fact that GT Advanced didn’t backload everything into fourth quarter. But it’s important to realize it will have to produce sapphire crystal and ship that to China well ahead of phones being completed. So if it’s doing that in July, the idea that phones will arrive in September is consistent. As for May, well that’s just not possible.