Posts Tagged ‘sapphire crystal’

by Matt Margolis

Xgear, a maker of sapphire crystal aftermarket screen protectors put together a nice crowdfunding video in 2013 that describes some key product benefits of sapphire crystal screens and comes product demonstration of sapphires unique qualities. These screen protectors are being sold today under the product name “Krystal” by Xgear.

I was recently asked what’s the difference between this aftermarket sapphire screen protector and the screen that will show up in the iPhone 6. The sapphire being used on the aftermarket protective cover screen is composed of pure sapphire crystal and measures 0.65mm thick. The physical properties of the aftermarket sapphire should be nearly identical to what Apple will use to cover the iPhone 6. The only likely differences will be the thinness of the Apple sapphire crystal cover screens (less than 0.65mm thick) in addition to any wild features that Apple might attempt to adhere or etch to the under side of the sapphire screen itself (solar cells?).

The listed benefits of Xgear’s “Krystal” aftermarket sapphire screen protectors are below.

Surface hardness of 9H (with the hardest being 10H) makes it nearly unscratchable

Thickness of .65mm (0.025in.) keeps your phone slim and sleek, Sapphire is 3.3x harder than glass

Oleophobic coating resists liquids, oils, and fingerprints while a beveled edge keeps you safe from cracked & chipped edges

Dielectric properties of sapphire add hover touch and through-glove touch abilities

Anti-shatter film prevents screen protector from scratching or cutting if broken

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The main issues with the aftermarket sapphire crystal screen protectors are the price ($50+) along with your typical aftermarket screen protector installation issues (dust, bubbles, trouble sticking). From my experience these are the same issues that plague all other screen protectors and just the reason why an iPhone with sapphire crystal cover screens need to be incorporated into the original product.

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by Matt Margolis

 

Appleinsider recently broke a story that Apple is planning to expand operations in Mesa by possibly adding a second building to expand production (see Appleinsider’s comments in the image below).  The expansion of the current facility along with a target date of June makes complete sense, but expanding to a second building just does not add up at this time.

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GT Advanced built a 20,000 square foot sapphire production facility in Salem, MA that was completed in 2011. The facility holds over 100 furnaces including over 80 ASF sapphire growth furnaces and there is plenty of room to spare to add additional furnaces, if needed.  The Mesa Sapphire Plant has 1.3 million square feet of production space or the equivalent size of 65 of GT’s Salem sapphire production facilities.  GT’s Salem sapphire production facility can hold over 80 furnaces and if we assume the same space to machine ratio within the Mesa facility the maximum sapphire growth furnace capacity inside of Mesa is over 5,000.  Appleinsider reported (see image below) that the Mesa sapphire facility will be equipped with 1,700 furnaces, which by themselves would only fill 1/3 of the Mesa facility and it’s more than likely in my opinion that the Apple has only completed one or two of the planned expansion phases within the Arizona facility.

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According to the Mesa facility lease agreement between GT Advanced and Apple will deliver the Mesa facility to the tenant (GT Advanced) in multiple phases as each phase becomes ready for delivery to the tenant.  The Mesa delivery of the premise from the landlord (Apple) to the tenant (GT Advanced) is broken into 9 phases and they are referred to within the agreement as Phases 1 to 6 and Phases A to C.  Appleinsider reported that the construction would be finished no later in June and based on the lease agreement between the two companies it seems more than likely that Apple may be targeting June to complete the remaining delivery phases inside of Mesa.  Once the remaining delivery phases are complete, Apple’s tenant GT Advanced to can grow sapphire and process sapphire boules within the remaining dedicated delivery zones (phases).

 

1.2.1       Phases. Landlord anticipates that it will deliver possession of the Premises to Tenant in multiple phases as each phase of the Premises (each, a “Phase”) becomes ready for delivery to Tenant.  As used in this Lease, the term “Current Demised Premises” shall mean, at any given time, the Premises or the Phase(s), and the portion of the Premises corresponding to such Phase(s), of which Tenant has accepted delivery in accordance with Section 1.4.  Exhibit C describes each of the nine (9) Phases of the Premises.  The Phases are designated on Exhibit C as “Phase 1”, “Phase 2”, “Phase 3”, “Phase 4”, “Phase 5”,”Phase 6”, “Phase A”, “Phase B” and “Phase C”.  Except as expressly set forth in Sections 1.2.2, 1.3 and 1.4, Landlord shall deliver each Phase of the Premises to Tenant in its then “as-is” condition without any representations or warranties regarding condition.

The master development and supply agreement between Apple and GT Advanced sheds some significant light on the contracted expectations between both companies.  According to the master development an supply agreement, the expectation is that “GTAT will at its expense, purchase, install, test, maintain and operate all equipment necessary to manufacture and deliver the development deliverables and the Goods”.  Additionally, “before placing orders for or purchasing any materials for use in Goods that are comprised of multiple components, GTAT will provide for Apple’s review and approval, a complete engineering bill of materials for such Goods…”.   The language in this agreement appears to indicate that GT will not only be responsible for development deliverables (sapphire boules) but the delivery of the goods (sapphire screens, sapphire components, etc.).

 

21.1.  Unless agreed otherwise in an SOW, GTAT will, at its expense, purchase, install, test, maintain and operate all Equipment necessary to manufacture and deliver the development deliverables and the Goods.  GTAT will also secure all materials in accordance with applicable Specifications necessary to timely manufacture and supply the development deliverables (pursuant to Attachment 2) and the Goods.  Upon Apple’s request, GTAT will purchase materials directly from Apple, and, at Apple’s request, will provide Apple with (i) weekly reports by part number specifying demand for such materials for the immediately following 12-week period; and (ii) weekly receipt logs of any such materials.  Before placing orders for or purchasing any materials for use in Goods that are comprised of multiple components, GTAT will provide Apple, for Apple’s review and approval, a complete engineering bill of materials for such Goods, listing the GTAT part number(s), lead-time(s), and cost(s) of each material therein.  Except for amounts due pursuant to a Letter of Authorization, the applicable SOW or Purchase Order, Apple will not be responsible for any costs associated with the materials.  “Equipment” means fixtures, tooling, test equipment and any other equipment used in connection with the development, manufacturing, testing, packaging, delivery or servicing of the development deliverables or Goods.  “BOM” means the engineering bill of materials that Apple creates and approves for the development deliverables or Goods.

The master development and supply agreement also indicates that GT will likely be responsible for storing goods for just-in-time delivery at an Apple Hub.  An Apple Hub is defined as a. “Apple-approved facility located at or near Apple-specified manufacturing or distribution facilities, or other Apple-specified location”.

13.   Hubs.  As agreed in any SOW, GTAT will store Goods in Hubs before their Forecast delivery date to support just-in-time delivery of the Goods.  GTAT will: (i) bear all costs associated with warehousing Goods in Hubs; (ii) maintain a sufficient inventory of Goods in the Hubs to satisfy the requirements of the then current Forecast; (iii) ensure that the Authorized Purchaser or its carrier(s) may withdraw Goods from the Hubs as needed; (iv) fully insure, or require the Hub operator to fully insure, all Goods in transit to or stored at a Hub against all risk of loss or damage until such time as the Authorized Purchaser takes title to them; and (v) require that the Hub operator take all steps necessary to protect all Goods in a Hub consistent with good commercial warehousing practice.  “Hub” means an Apple-approved facility located at or near Apple-specified manufacturing or distribution facilities, or other Apple-specified location.

 

The “9” Delivery Phases & Multiple Components within Mesa Takeaway

The “9” delivery phases (1 to 6 and A to C) within the Mesa facility are likely for specific products and/or sapphire components.  If you are going to design a manufacturing plant it would make sense to zone off area based on the specific sapphire “form factor” and the required finishing technique(s) to process the finished sapphire good.  GT’s former CFO Richard Gaynor summed up the “form factor” benefits perfectly during GT’s Q4 2012 conference call, “One of the benefit of the technology that we have is that it can actually change the form factor of the boules that you produce. And so you can actually customize the size of the boule to the application you’re trying to build for”.

In January 9to5Mac reported that Apple was hiring for iPhone/iPad manufacturing design engineers for the Mesa, AZ sapphire plant.  The master development and supply agreement specifically calls out how GT Advanced will handle Apple “goods” that are comprised of multiple components.  The iPhone/iPod engineering job posting in addition to the contract language regarding multiple components certainly send a strong signal that the Mesa sapphire plant will not be limited to just the iPhone.  I have thought for sometime that Apple would refresh the iPod alongside the upcoming iPhone in 2014.  The size of the current iPods and iPhones are nearly identical and it makes sense that you could grow “formed” sapphire boules for “multiple components” (iPhone & iPad) within the same “good” (sapphire boule).

The various contract agreements between GT Advanced and Apple indicate that a lot of activity is going to occur inside of the Mesa sapphire plant.  GT Advanced appears to be responsible for purchasing and installing the ASF equipment, growing the sapphire boules, producing the finished goods and shipping and storing the goods at an Apple approved facility.  At this point it is still anyone’s guess as to what exactly will be produced from the Mesa sapphire plant, but the “9 phases” and the mention of “goods with multiple components” certainly indicate that the scope of the Mesa operations may include all of Apple’s iDevices and not just the next generation iPhone and or iWatch.

 

 

Full Disclosure: I am long GTAT and have no plans to buy or sell any holdings in the next 72 hours

Apple “Exclusivity” with GTAT is just Pure Sapphire? – by Matt Margolis

I spend a lot of time just thinking and digesting information while attempting to figure out the likely outcome.  One of my reader’s has been filling my email box with questions and items to follow-up on.   I want to thank George because he may have helped me connect some significant dots to determine what is actually “exclusive” in GTAT’s deal Apple.  I have been under the impression that GT can only use full sapphire cover screens for the smaller devices like the iPhone, iPod and thought it would be out of scope for the iPad and MacBook.  But you know what?  I think I might be wrong.  It all comes down to form factor.  What is form factor?

Form factor refers to a mobile phone’s size, shape, and style, as well as the layout and position of the phone’s major components.  As always, I dig into my comment archive and pull out a few rabbits to digest from GT’s CEO and CFO dating back to Q4 2012.

Tom Gutierrez GTAT CEO Q4 2012

Well, quite honestly, the problem doesn’t change with form factor. The screens, the bigger they’ve gotten, the more prone to breaking and cracking and scratching they are. But honestly, because the larger form factors you stick in your pocket, you don’t hold out. And so our view is the form factor doesn’t change anything. The form factors that we know of, that are being considered by the OEMs that we’re talking to, are inside the range that can be accessed by the technology, both on the fabrication side that’s being developed, as well as our growth technologies. If — one thing probably, as they get bigger, our growth technology probably has preferential treatment because of the form factor of our boules relative to some of the other technologies that are out there. So we’re comfortable. Nothing that’s happening in the marketplace is diminishing our opportunity. In fact, it’s just the opposite.

Richard Gaynor GTAT CFO Q4 2012

Out of the benefit of the technology that we have is that it can actually change the form factor of the boules that you produce. And so you can actually customize the size of the boule to the application you’re trying to build for.

I feel like I have a very good understanding of sapphire cover screen process and how they are produced but I did not realize GT can “change the form factor of the boules that you can produce”.   So if Apple wants a new sapphire screen that will measure 4″ by 3′ that is roughly a 5″ screen GT has the ability to “customize the size of the boule to the application you’re trying to build for”.  This is significant, very significant.  I have been picturing a large boule that needs to but carved a like Halloween pumpkin in order to produce sapphire screens.  Instead GT could conceivably grow a large square of sapphire measuring just over 4″ by 3″ in the exact dimensions Apple needs and they would just need cut them with the diamond wire saw to the desired thinness and then they go through the rest of the finishing process to make a screen.  The amount of sapphire that is wasted (unusable) from a grown boule appears to be very minimal.  If GT can grow boules very closely to the desired shape and dimensions it’s possible that less than 5-10% of the boule is wasted using GT’s technology.

Large Boule

My takeaway: GT can produce far more sapphire cover screens per furnace because there is limited waste.  Dividing more yield over the same base case also reduces your unit cost to make a sapphire screen.

Motorola MP6000

GT announced a deal with Motorola on May 2, 2013 to produce sapphire glass for their MP6000 Multi-Plane Scanner.    I found a youtube video of the scanner in action and it was posted on February 11, 2013 almost 3 months before GT announced the deal.  The date of the video tells me that GT was making these long before the announcement of the actual deal, but what’s even more important is the size of the sapphire glass used in the scanner.    From the tech specifications below the sapphire glass on the scanner measures 5″ by 4″ which is a whopping 7.5″ screen size.   I have been thinking that full sapphire cover screens would only be feasible for smaller devices, but this whole form factor technology has thrown me for a loop.

Screenshot - 3_9_2014 , 12_37_30 PMScreenshot - 3_9_2014 , 12_38_02 PM

Obscure Analyst Takeaway:

If Apple’s Mesa, AZ sapphire plant has enough furnaces to cover all of the Apple iDevices in full sapphire cover screens they will do it and they will do it in 2014.  Yes 2014!  Apple’s iWatch will use sapphire laminates because it needs the flexibility feature.   I’ve been firmly in the camp, that sapphire laminates would only be used down the road for Apple’s iPad and MacBook.  My reasoning for this stance was because Hyperion, will not be ready in 2014 to make enough sapphire laminate screens for Apple’s iPad and MacBook in 2014.  However, now that I know GT can make pure sapphire screens to nearly any size with little waste using their form factor technology.  It really makes me wonder if sapphire laminates will only be used in Apple’s iWatch.  Perhaps Apple owns exclusive rights to pure sapphire for the performance upgrade it offers over reinforced glass?  It’s very interesting GT’s CEO would not elaborate on the benefits of sapphire during the conference call because they are not in the public domain.  The performance upgrades that pure sapphire offers over reinforced glass must be significant and key to Apple’s future innovation.  If these benefits are so significant and not in the public domain today it makes sense why Apple made this HUGE investment in sapphire.

I also believe GT and Apple went splits on the Mesa furnaces with reach buying roughly 2,000 furnaces.   GT has given us their side of the equation after deploying $180 in PPE and announcing that $500-600m would be spent in capital expenditures in 2014 which is ample money to support 2,000 furnaces at $300k each.  Additionally, the language in the contract is ambiguous enough to support my theory and Apple’s $10.5B capital budget in 2014 can easily cover $600m in furnaces.  I also keep going back to comments made from Mesa officials that Apple (not GT) will be investing $1.5B of capital into the plant.  The primary focus that we know of is this plant will grow sapphire.  It only makes sense Apple is using a significant amount of the $1.5B capital investment to buy furnaces and the agreement does mention “Apple  owned” equipment that GT “will operate”.

I’ll leave you with a few more comments from Tom Gutierrez, including one from the Q4 2013 conference call just 2 weeks ago.  Is it possible Tom is agreeing with me?  I mean he does say assuming Hyperion will be heavily involved in Mesa, AZ is not “necessarily a good connection”.  Tom’s comment 2 weeks ago is also consistent with his comments made during the Q4 2012 conference call.  During the Q4 2012 call he stated current fabrication techniques, excluding Hyperion, will support the adoption of sapphire in several applications including smartphones (Apple) and point-of-sale systems (Motorola MP6000)”.  Lastly, Tom also points out that sapphire laminates do not have all the features of full sapphire; Sapphire laminates are expected to have some, but not all, of the attributes of a pure sapphire solution and are expected to have a cost structure that rivals current cover glass products on the market today”.

Tom Gutierrez GTAT CEO Q4 2013

I think you are making a connection there between Hyperion and the Arizona project. And that’s not necessarily a good connection. Hyperion has an incredible number of applications outside of that area and the growth in Hyperion is dominated by those other applications in our projection through 2016.

Tom Gutierrez GTAT CEO Q4 2012

Hyperion could also have potential application in our sapphire business. Given the feedback that we’ve received from OEMs and early adopters, we believe that current sapphire fabrication techniques, excluding Hyperion, will support the adoption of sapphire in several applications including smartphones and point-of-sale systems. However, we also believe that there could be an incremental future market opportunity using Hyperion to create lower-cost sapphire laminates for broader mobile phone and aftermarket applications. Sapphire laminates are expected to have some, but not all, of the attributes of a pure sapphire solution and are expected to have a cost structure that rivals current cover glass products on the market today.

So what does all this mean?  I’m under the impression now that the “exclusivity” of the Apple deal is specifically for full sapphire cover screens, which will come with the “performance upgrades” that Apple wants and GT can deliver and no one can talk about.  The sapphire laminate market might be the next place GT is going.  If GT can offer a new product that is like reinforced glass, at the same price with better scratch resistance, GT might not only steal someone’s Turkey, but also the sides and dessert that came with the Thanksgiving meal.  If my argument does not sound convincing enough, you should read the comments directly GT on this topic.

Tom Guiterrez GTAT CEO Q4 2012

On the sapphire cover glass, I mean, you could imagine being able to create a laminate. Say, a 30- to 40-micron laminate that you can essentially bond to a substrate glass or polycarbonate or something like that, so it’s more of a broader — it’s a broader application than what we would consider to be the true smartphone area, where a pure sapphire solution is more likely, okay? And so it’s really expanding into the lower part of the market that wouldn’t normally consider using a sapphire because the technique that we’re developing would get you a sapphire surface on a polycarbonate or glass substrate. Not as good as a pure thing, but quite good compared to current solutions in terms of scratch resistance. And so that’s the objective, is to create a — to build another end to the business other than the high-end smartphone or the smartphone — the broader smartphone part of the marketplace.

Tom Guiterrez GTAT CEO Q3 2013

We have also made similar progress developing low-cost composite glass and thin sapphire structures that we believe will have broad use in consumer applications

~Obscure Analyst 3/9/14

Full Disclosure I am long GTAT and have no plans to buy or sell any holdings in the next 72 hours.

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I spend a lot of my time trying to figure out where things are going and how did we get there. On May 2, 2013 GT Advanced Technologies (GTAT) CEO Thomas Gutierrez made a colorful remark during GTAT’s Q1 2013 conference call during the analysts Q&A section.

For the rest head over to http://seekingalpha.com/article/2042153-gt-advanced-technologies-the-truth-behind-the-cover-story

Matt Margolis – 2/21/14

Mark Shuttleworth, Canonical founder and the man behind the Ubuntu edge concept and design, confirmed Wednesday via a Canoical Town Hall interview that GT Advanced Technologies was engaged to make the sapphire displays for their upcoming Ubuntu Edge.  Tech enthusiasts will remember the Ubuntu Edge for their 4.5″ displays that would been the first non luxury mobile phone to sport sapphire cover glass.  However, the crowdfunding effort to kick off the production of the device fell $19m short of their $32m goal.

Shuttleworth’s comments can be heard by your own ears at approximately 30:48 into the video.  Shuttleworth was responding to a question on whether or not fans will ever see the Ubuntu Edge come to life and during his response   he stated this:

“Apple just snapped up three year’s worth of the supply of sapphire screens from the company that we had engaged to make the screens for the Edge”

There has been a lot of buzz around various blog sites trying to figure out how this comment relates to Apple’s sapphire display plans on their next generation iPhone 6 and Phablet.  Shuttleworth, make some additional comments that struck home and may shed some light on the Ubuntu Edge and the sapphire screen supply.  When he spoke of the Edge he spoke of the device in the past and how the device featured RAM, sapphire displays and desktop functionality that other manufacturers are now using.  He also discussed how the Edge did not make on this round of funding and that their focus will be on software development for devices of that caliber. Shuttleworth’s comment is below:

“for better or worse we are now focused purely on the software making for that kind of device”

The Obscure Analyst’s takeaway:

Apple has built a moat around the sapphire cover screen display marketplace.  Just like in medieval times, when castles and fortresses were built, a moat was dug immediately outside castle walls and filled with water.  The moat around the castle gave the walls unprecedented protection from battery rams, the weapon of choice during that period of time.  Just like digging a moat in medieval times, Apple has bought up the technology and know-how of GT Advanced Technologies.  GT Advanced is the only sapphire equipment maker or sapphire ingot producer on the planet today that can pull off producing sapphire crystal displays at a competitive price and deliver the volume Apple needs.  Apple has indeed dug a moat around sapphire cover displays and is pouring water all over the mobile phone industries plans to add sapphire displays to their devices at a competitive cost.

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Full Disclosure : I am long GTAT and have no plans to buy or sell any holdings in the next 72 hours

Matt Margolis – 2/21/14 (I am long GTAT and have no plans to buy or sell any holdings in the next 72 hours)

Courtesy of JP Morgan research sapphire ingot maker STC (Sapphire Technology Company), who doubled their capacity last fall to meet expected demand for applications of sapphire glass does not expect to make any sapphire screens for Apple.

Also, STC is expected an unseasonal 2Q2014 boost in demand versus 1Q2014. There is no reason for STC to expect a demand boost unless a new Apple product is being released during Q2 or early Q3.

The Obscure Analyst’s takeaway, GTAT will be producing 100% of Apple’s sapphire screens while the existing sapphire component makers (lenses and home buttons) will continue to fill components contracts. The anticipated uptick in STC 2Q2014 demand suggests that one Apple’s iPhone 6 releases might occur in June instead of September. Stay tuned!

Below is the note from JP Morgan Research

1Q14 is the bottom in 2014 – According to STC management, after a seasonal correction in Apple iPhone orders, STC sees 2Q14 demand being stronger than 1Q14. The comment contradicts a normal seasonal pattern in Apple’s iPhone shipment; we suspect this is due to an earlier preparation for iPad home buttons.

Setting a realistic expectation on sapphire iPhone cover – The management did not try to paint a rosy picture on business opportunities from iPhone covers. The management does not expect STC to participate in the first batch of iPhone sapphire cover production (if any in 2014), but the management remains confident that if Apple chooses to do this in the future, STC could still be a strong candidate and cost-effective producer for Apple or non-Apple smartphone customers.

No fund-raising plan unless sizable new business opportunities are secured – The management is content with the existing capacity and shows confidence in maintaining the majority of market share in existing items such as sapphire for home buttons. Even if there are sizable new business opportunities, STC will aim to finance it through advanced prepayments/loans from customers as first alternative. The company also will try to reduce the dependence on a single customer by increasing customer diversification.

Rubicon comment on pricing trend reaffirmed our view – Rubicon (RBCN.US, covered by Paul Coster) reported 4Q13 results on February 20, 2014, which was in-line with expectations. 1Q14 revenue guidance also aligned with market expectation. Rubicon management commented that its 2-4” cores are fully utilized and pricing is expected to resume its upward trajectory in 2Q14 following seasonal weakness in backlighting in 1Q. Of note, STC demonstrated more than 10% OPM in 4Q13 while Rubicon reported -78% OPM. STC’s 4Q13 revenue was ~USD21mn vs. Rubicon’s at USD11.5mn