Apple's Pricey Bet on New Sapphire Screens
The first sapphire display screens for the forthcoming larger iPhone and smartwatch are expected to roll off production lines this month at a Mesa, Ariz., facility that Apple opened with materials manufacturer GT Advanced Technologies Inc. At full capacity, the plant will produce twice as much sapphire as the current output from the nearly 100 manufacturers world-wide, says Eric Virey, a senior analyst at French research firm Yole Développement.
"Nobody has ever invested this much money on sapphire," Mr. Virey says.
GT and Apple are producing synthetic sapphire, designed to replicate the properties of one of the hardest minerals on earth. Sapphire doesn't crack or scratch as easily as glass. It withstands high temperatures and resists chemical corrosion.
Manufacturing synthetic sapphire is costly, so the material has been used sparingly, in airplane windows and armored vehicles to protect against extreme conditions or as a scratch-resistant cover for expensive watches.
Apple already uses sapphire to cover the iPhone's camera lens and fingerprint reader. But broader use of the material could ease another big headache: damaged phone screens.
SquareTrade, which offers warranties for damaged screens, estimates that 11% of iPhone owners have devices with cracked or broken screens.
Changing a component as important as the screen carries a fair amount of risk. Corning Inc., which makes the heavy-duty Gorilla Glass used in today's iPhones, has proven that it can meet Apple's demands to speed production and churn out millions of phones ahead of a new product release. If Apple and GT run into problems producing sapphire on a large scale, that could throw a wrench into Apple's supply chain, creating shortages during peak demand. It also isn't clear that sapphire will outperform current materials in real-world use.
Analyst Mr. Virey estimates that a sapphire screen could cost $16 to produce, compared with about $3 for Gorilla Glass.
Apple and GT declined to comment for this article.
Apple is considering using sapphire screens in more expensive models of the two new, larger iPhones it plans to debut this fall, if it can get enough of the material, people familiar with the matter say. Some analysts expect Apple to charge more for the phones than previous new models, because of increased component costs.
If the use of sapphire leads to fewer broken screens, Apple may save money in warranty costs. But Bernstein Research analyst Toni Sacconaghi says those savings likely wouldn't offset sapphire's higher cost.
If Apple doesn't raise prices, the higher cost could erode the iPhone's profit margins, says Matt Margolis, an analyst at PTT Research and a GT investor. He says Apple may be willing to absorb the hit to separate its products from those of rivals.
Apple has invested heavily in components to make its products stand out. It designed its own 64-bit processor for mobile devices, helping the company leapfrog competitors. The Cupertino, Calif., company acquired AuthenTec Inc., a maker of fingerprint-sensor technology, in 2012 and last year introduced a fingerprint reader in the iPhone 5S.
For sapphire, Apple last year bought the 1.4-million-square-foot Arizona facility—about the size of two dozen football fields—from a solar-panel producer for $113 million and leased it to GT, a leading maker of furnaces used to produce sapphire.
In November, Apple agreed to prepay GT $578 million to outfit the factory with cutting-edge furnaces. GT is operating the factory to produce sapphire exclusively for Apple.
GT Chief Executive Tom Gutierrez told analysts last week that the Arizona facility was nearly complete and was starting the transition to high-volume production. He said the plant wouldn't reach full operational efficiency until early next year. GT said it expected Apple to pay the last of its four prepayments, of $139 million, by the end of October, contingent on GT meeting certain operational targets.
Sapphire is scratch-resistant. But it isn't clear if the material will better protect against screens breaking, since sapphire's strength depends on its thickness and cut. Sapphire also is denser than glass, which will add to the phone's weight.
Corning says its Gorilla Glass has outperformed other materials, including sapphire, in tests in which screens are dropped from different heights. It also says Gorilla Glass reflects less light than sapphire, making the glass easier to view in sunlight.
A few small smartphone manufacturers have already introduced handsets with sapphire screens. Britain's Vertu Corp., which makes luxury phones costing more than $10,000, has two models with sapphire screens. Japan's Kyocera Corp. introduced the Brigadier, a phone that the company says is virtually scratchproof.
Natural sapphires are gem varieties of corundum, a crystalline form of aluminum oxide. Impurities such as copper or magnesium change the color, creating the gems used in jewelry. Without such impurities, sapphire is clear.
Mass-producing sapphire is complex. Sapphire crystals are grown in massive furnaces at high temperatures. After the ingredients crystallize in an energy-intensive process, the result is a giant hockey-puck-shaped cylinder called a boule, which is carved into different shapes. Apple's Arizona plant is using next-generation furnaces capable of producing boules larger than 440 pounds.
By forming boules more than 50% larger than produced by current machines, Apple and GT aim to drive down the price of sapphire and close the gap with glass.
"Before the Apple investment, I would have said sapphire is a great material with great potential but it's a few years out from becoming a market reality," says Vinita Jakhanwal, director of mobile and emerging display technologies at research firm IHS Technology. "But Apple has invested a significant amount, so it would be fair to say that the company probably expects a return on its investment pretty quickly."
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