A few billion reasons why Apple’s Sapphire Plant will produce more than iWatches and home buttons

Posted: May 12, 2014 by mattmargolis24 in Mesa Sapphire Plant
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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.

Conclusion

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.

 

 

 

 

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Comments
  1. pat says:

    Thanks again for a great article.
    My conclusion is that we are tortured between the fact that the production of the next iPhone started and the fact that there is still no evidence that sapphire will be used in it. As we get closer to June 2nd the pain of waiting is excruciating while the price movement from $19 to $13 seems to indicate we are not getting sapphire in the next iPhone . Note you article above fails to mention the iPhone and talks about iDevices instead …

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    • The larger picture is the plant is making enough sapphire for more than the watch or home buttons. In order to consume all that sapphire Apple need to include sapphire on the iPhone to make a significant dent. So far I have heard of 100 unit sapphire iphone test January and another 20,000 – 30,000 unit sapphire iphone test done over the last month or so.

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  2. Andy says:

    Are you trying to pound the obvious into our heads? So, we have deferred revenue that is larger than we would expect for iWatches alone, we have far more capacity than what is needed for iWatches and home buttons, and the contract has clearly lined out target dates for capacity in order to meet production deadlines for Apple. So, either Apple isn’t very smart and they wanted more capacity than they can use, or they plan on using sapphire on just about everything they can as soon as they can.

    I am going to assume Apple is smart and well managed, thus the new iPhone will have sapphire.

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  3. Bill says:

    Thanks again Matt for your insight and research. Thinking on what you wrote, I come to realize this plant in Mesa will be producing very large quantities of sapphire for years to come for Apple.

    One can only imagine what other markets are out there for GTAT to tap for their sapphire.

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  4. Ynotcookit@aol.com says:

    Good one Matt — Seeking Alpha material!

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  5. Thanks Matt. Timely post. In a few weeks we should get clarity on just what the sapphire will be used for. Your position seems the most logical. Looking forward to the Apple Conference.

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  6. Phil says:

    Matt- selling after the quarter was probably A) not related to the quarterly revenue because $20 to $30 million out of $600 to $800 is noise and B) probably institutional selling and not retail. What is your best guess about what drove the selling (and please don’t say “weak hands”, “no faith” , etc.). Did the combo of deferred revs and inventory imply not enough sapphire screens to support an early launch of the smaller screen device, which may have led some to believe that the sapphire might only be on the iPhablet and therefore put the guidance at risk? Were some thinking that the 4th payment from apple should have occurred. Would love to hear your thoughts.

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    • My personal opinion is that large money managers took advantage or the news and pushed down the price to accumulate large amounts of shares. Similar price action occurred after the secondary offering and the end result was a pickup in institutional ownership. It’s very hard to pick up millions of shares in a day without some volatility and significant volume.

      Liked by 1 person

  7. Hi Matt
    At .6mm thick (.024″) the saw kerf would need to be .005″ and I do not think any one has that fine a wire for the application. My guess is more like a 50%A loss unless the proton exfoliation process is used.
    Dick

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  8. rickag says:

    Off topic but does anyone know the maximum thickness for a sapphire wafer using Hyperion.

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  9. Nils Haddock says:

    Matt thanks for all the diligent work tracking GTAT. Connecting the dots as the company grows is vital to sound value investing.

    Thought I would seek your response to the recent news one of GTAT’s subsidiaries has announced it will be supplying sapphire screens to Motorola’s newest barcode scanner. http://investor.gtat.com/releasedetail.cfm?releaseid=761274

    Does this bode well for the GTAT-Apple Shapiro screen hypothesis? This proves they have a sapphire screen product, that they are commercially viable and thy instead of dedicating all production to Apple, they feel secure enough to supply more than one customer. So either the Apple relationship is stable and taken care of or there is a lot less demand from Apple than we expected, allowing for orders from other customers.

    Thanks

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  10. Todd says:

    In gtat’s annual report, ceo Gutierrez claims on pg 4 that they “continue to work on a process to deliver Sapphire laminates beyond 2-inch diameters.” How do you reconcile this with an iPhone and not just an iwatch? I’m speculating iwatch only, with plans for a followup iphone cover screen in 2015. Are the thin laminae cost effective without hyperion for cutting wafers? Any proof hyperion is cutting full size cover screens?

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    • I don’t believe Hyperion or laminates will be used in any of apples products. Possibly the 12.9 iPad due to size and maybe the rear facia of the MacBook. Apple wants pure sapphire or the “very very best” sapphire product.

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  11. Unbreakable says:

    Matt, do you think it’s possible that Apple is using sapphire for new micro LED displays for watches and phones instead of or in addition to sapphire screens? The acquisition of LuxVue is just for this reason since micro LED will create 90% efficiency improvement in battery life, increased brightness for outdoor use, and possibility of curved screens needed for watches. And…. GTAT produces sapphire for these products. Would this change your end usage calculations?

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  12. Unbreakable says:

    Also, regarding your solar prediction based on WWDC image, could this also be a hint at micro-LED displays? http://tctechcrunch2011.files.wordpress.com/2014/05/screen_shot_2014-05-02_at_1-51-03_pm.png?w=331&h=399

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