by Matt Margolis
Last week GT Advanced confirmed the company’s guidance of $600-800m for 2014 and management could not provide a breakdown as to when or what way Apple could use sapphire. GT did confirm on the conference call that all of the sapphire being produced will be utilized. I’ve been asked by various investors and followers whether or not the iWatch alone is large enough to hit GT’s guidance of $600-800m of revenue in 2014. My simple answer is no. I’m estimating an ASP of $4 for each sapphire iWatch screen and even if Apple’s iWatch sales exceed 60m in 2014 it would only amount to $240m of revenue for GT.
The Apple/GT Mesa, AZ sapphire plant measures over 1.3 million square feet and I have read some reports that Apple would be dedicating this facility to produce sapphire home buttons and iWatch sapphire covers. GT announced recently that its 165 kg boule sapphire growth furnace was going to be commercially ready in Q3’14. Additionally, GT also announced that they have sapphire growth furnaces that are producing “significantly” larger sapphire boules than 165 kg. These larger ASF sapphire growth furnaces were being held captive for the company’s internal use but they are production ready and are likely in operation in Salem, MA and Mesa, AZ.
# iWatch Screens per ASF Furnace
There are a lot of factors that go into calculating the screen yield per ASF furnace and the difficult part is that the factual information is not readily available from the two parties involved. What facts I do know can help everyone understand just how extraordinarily the amount of sapphire that will produced inside the Mesa, AZ sapphire plant will be once it reaches full capacity. I modeled out the iWatch at 1.5″ by 1.5″ which actually equates to a 2.25″ screen size which is significantly larger than sub 2″ screen estimates I have seen from various analysts. The sapphire screen thickness for my calculations is 0.60mm which is just 0.05mm thicker than the current thinnest version of gorilla glass. The boule size for my calculations was 200kg and 230kg, based on my conversations with a leading sapphire expert and commentary I’ve seen by GT regarding the company’s planned larger boule size. Additionally, I’ve modeled out the days to grow a boule at 17 days and 22 days, currently GT specifications on the ASF115 are “18 days or less”. I did reach out to GTAT for clarification on the specifications of the ASF165 and the company representative declined to comment. Lastly, I’m estimating that 20% of the sapphire boule will be lost due to kerf loss and/or any other defects.
Based on my calculations, 1 ASF furnace can produce between 800,000 and 1.1 million, 2.25″ screens that are 0.6mm thick iWatch sapphire cover screens each year. If Apple sells 60m iWatch units in 2014 it would require between 55 and 75 ASF growth furnaces running 12 months of the year to produce enough sapphire to cover 60m iWatches with sapphire. Keep in mind that the Mesa, AZ sapphire plant is expected to house 1500 to 2000+ furnaces. A fully ramped up Mesa, AZ sapphire plant would be able to cover 1.2 billion and 2.2 billion 2.25″ iWatches a year with 1500 to 2000 furnaces running year round Additionally, if you believe that the Mesa sapphire plant is just for home buttons, you should realize that the plant would be able to produce at least 10 and 20 billion sapphire home buttons a year once at full capacity.
The Mesa, AZ sapphire plant owned by Apple and operated by GT Advanced Technologies will produce an extraordinary amount of sapphire. I can assure you that home buttons and iWatch covers will not make a small dent in the amount of sapphire that will be produced annually within the 1.3 million square foot facility in Mesa, AZ. GT recently commented during the company’s Q1 2014 conference call that Apple will utilize all of the sapphire being produced. GTAT and Apple have not commented, confirmed or answered any questions directly related to the use of sapphire in Apple’s products, but a savvy investor would sit back and realize its going to take hundreds of millions of Apple devices sold annually to consume the extraordinary amount of sapphire that will be produced inside of Mesa, AZ.
GT’s CEO Tom Gutierrez, May 8th 2014 Q1 2014 Conference Call
I can tell you that we are producing sapphire, and that I expect that the sapphire we produce will be fully utilized.