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Apple's alchemy turns sapphire into US manufacturing jobs

06 Nov 2013

Market for sapphire is booming as smart phones adopt the scratch-proof gemstone.

by Mike Hatcher
The factory in Mesa, Arizona, had never been intended to house the manufacture of a gemstone. Ahead of the photovoltaics industry’s 2011-2012 meltdown, First Solar had built it with the aim of producing 280 MW worth of solar panels there each year from four production lines.

Dignitaries posed for photos and the facility was even dedicated by First Solar’s then-CEO Rob Gillette part-way through its construction, but ultimately the company abandoned the site - along with Gillette - before it was even commissioned.

Mesa had promised the creation of some 600 skilled manufacturing jobs under First Solar, jobs that never arrived. But now that same site is set to employ more than 700 people, thanks to the growing use of sapphire in consumer electronics – and Apple’s promise to bring manufacturing jobs back to the US.

In a deal announced on November 4, GT Advanced Technologies (GTAT) and Apple said that they would use the Mesa facility to make sapphire under an exclusive supply agreement for the consumer electronics giant. Apple likes the material because of its optical and scratch-proof properties – ideal for covering the fingerprint sensors on its latest iPhones.

Up-front payment
GTAT, which has been suffering of late because of its exposure to the photovoltaics market and resulting low demand for its polysilicon manufacturing equipment, is to receive some $578 million from Apple in four separate installments as it sets about building sapphire capacity and ramping production of the material.

The deal is designed as an up-front payment for cash-rich Apple’s sapphire requirements from GTAT, which is planning to reimburse the amount over five years, starting in 2015. GTAT said it had already accelerated its plans to develop “next-generation” sapphire furnaces with a larger capacity than existing tools.

That development that will have a positive knock-on impact for other sapphire applications, notably solid-state lighting, by supporting the production of larger-diameter wafers on which LED chips are fabricated.

"We are very excited about this agreement with Apple as it represents a significant milestone in GT's long term diversification strategy," said Tom Gutierrez, GTAT's CEO, as he announced a deal in which Apple will provide the Mesa facility, while GTAT will own and operate the sapphire furnaces at the site.

And although the exclusive agreement will inevitably reduce his company’s profit margins as it becomes a part of Apple’s sprawling supply-chain, it will enable GTAT to scale up sapphire production massively without undue risk and position itself as a low-cost supplier.

Sapphire boom: good for LEDs and lasers
The growing attractions of sapphire for makers of smart phones was recognized by the CEO of another manufacturer – Rubicon Technology – just last week. Raja Parvez noted that Apple was expanding its use of the material from fingerprint sensors to the “home” button, and that other consumer electronics companies were following suit.

Indeed, the trend towards sapphire had already been noted by analysts at the market research company IHS. In their “sapphire ingot/substrate” report published last month, ahead of the Apple/GTAT agreement, they predicted:

“Demand for 2-inch-diameter sapphire ingots used to make substrates will amount to 84 kilometers in 2016, up 166 per cent from 32 kilometers in 2012. This year will see particularly strong growth, with demand rising 70 per cent to reach 54 kilometres.”

“Apple triggered the current boom in demand when it became the first smartphone maker to employ a sapphire lens cover in 2012,” said Richard Son, senior LED analyst at IHS. “Other smartphone brands are now following suit. Combined with strong sales from the fast-growing LED lighting market, the increase in demand should help alleviate the oversupply that has plagued the sapphire market in recent years.”

Aside from Apple’s iPhone, LG’s new Optimus G2 smart phone – launched in September - adopted sapphire in the camera lens cover. As IHS explains, sapphire substrates are useful for covering lenses, buttons and displays, and more scratch-resistant than glass.

Virtuous circle for LEDs
In recent years the LED market has provided the vast bulk of the market for sapphire, and accounted for 90 per cent of ingot demand in 2012. In contrast, it is early days for smart phone applications, which in 2012 represented less than 5 per cent of the market demand. However, says IHS, this situation is changing rapidly, with covers of phones set to consume 20 per cent of all sapphire ingots sold next year.

The good news for the beleaguered sapphire makers like Rubicon, who have been battling an oversupplied market for the past couple of years, is that both the anticipated LED lighting boom and smart phone applications will rapidly bring supply and demand into balance.

Meanwhile, Apple’s GTAT partnership should spark a virtuous circle in which the emergence of low-cost, large-diameter sapphire substrates will help to cut the cost of LED lighting and spark even greater demand.

There will also be a knock-on effect for industrial lasers; IPG Photonics said recently that it was seeing additional demand for fiber lasers to process sapphire and glass used in consumer electronics.

Upward spiral
Not surprisingly, news of the Apple agreement sent GTAT’s stock price spiralling upwards, with the company gaining some 24 per cent of market value following the announcement.

And while the close ties with Apple will inevitably see GTAT’s executives deflecting away any probing questions about the details of the deal, the creation of some 700 new US manufacturing jobs – or triple that number, according to Forbes – will certainly play well for both the companies involved and politically.

It also represents the start of a seismic shift in GTAT’s business. For 2014, revenues are now expected to come in at anywhere between $600 million and $800 million – more than doubling from the figure of around $300 million anticipated for 2013.

And sapphire-related sales – whether of furnace equipment, materials used in LED production or the new Apple deal - will account for some four-fifths of the 2014 business. The precious stone has just become a lot more precious for GTAT and its future employees in Mesa.

There remains one legacy of First Solar's involvement: thanks to a combination of solar and geothermal power, the Mesa facility is set to be fully powered by renewable energy.

About the Author

Mike Hatcher is the editor of optics.org.

Mad City Labs, Inc.CeNing Optics Co LtdFirst Light ImagingABTechLaCroix Precision OpticsHÜBNER PhotonicsUniverse Kogaku America Inc.
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