Apple is making a billion dollar bet on sapphire as a strategic material for mobile devices such as the iPhone, iPad and perhaps an iWatch. Though exactly what the company plans to do with the scratch-resistant crystal and when is still the subject of debate.
Apple is creating its own supply chain devoted to producing and finishing synthetic sapphire crystal in unprecedented quantities. The new Mesa, Ariz., plant, in a partnership with sapphire furnace maker GT Advanced Technologies (GTAT) of Merrimack, N.H., will make Apple one of the world's largest sapphire producers when it reaches full capacity, probably in late 2014. By doing so, Apple is assured of a very large amount of sapphire and insulates itself from the ups and downs of sapphire material pricing in the global market.
In keeping with long-standing practice, Apple has never publicly discussed the Arizona project or what it intends to do with such a vast amount of sapphire material. Rumors and more or less informed speculation have flourished in that silence.
The Arizona project was revealed in November, with Apple paying $578 million for GTAT to install and run its advanced sapphire growth furnaces in a plant built and owned by Apple. The news triggered a frenzy of speculation that Apple planned to use sapphire crystal sheets to replace the glass currently used in touch displays for its 2014 iPhones, iPads or a new line of "wearables" such as the long-rumored iWatch, or all of the above.
That's only the tip of Apple's investment. Once the 253-pound "hockey puck" shaped sapphire boules emerge from the furnaces, they'll be shipped to Apple's supply chain partners in Asia, including Biel Crystal Manufactory and Lens One Technology Co., for slicing, polishing, laser cutting, coating and eventual assembly.
+ Also on NetworkWorld: The great 'iPhone 5c is a failure' freakout +
But to do all this, these companies, and Apple, will have to invest heavily in new equipment that can handle sapphire, since only diamond is harder, and handle it in the quantities that Apple will produce. That's not a simple process.
Natural sapphire is a gemstone variety of the mineral corundum, a crystalline form of aluminum oxide. Corundum is colorless, but in natural sapphires, various impurities create a range of colors: chromium makes the gem red, becoming a ruby; iron and titanium create the prized cornflower blue of a true sapphire.
Synthetic sapphire is colorless, unless deliberately colored. GTAT's ASF uses a variation of what's called the Czochralski process, combining the melting of aluminum oxide, a seed sapphire crystal, and heat extraction to crystalize the alumina melt. [For more details, see the accompanying slideshow: "Why Apple's sapphire plan is as hard as the mineral itself"] Like natural sapphire, the synthetic is incredibly hard and that hardness creates challenges for using it.
"When the [sapphire] area is larger, with the increased hardness, it takes more aggressive abrasives to grind and polish it," says Jennifer Stone-Sunderberg, who has a Ph.D. in solid state chemistry and crystal growth, and now consults in this field as a managing director of Crystal Solutions of Portland, Ore. "It's time-consuming to polish something that hard."
Secondly, it means overcoming a surprising problem: despite its hardness, synthetic sapphire can be prone to fracturing, at almost any point in this finishing process, due to impurities or to the presence of unresolved strains in the crystalline structure.
"That's something that's being very carefully measured and tested," says Stone-Sunderberg. "Fracturing is probably of the highest concern. If a product is released with a more expensive touch screen [cover] and consumers experience fracturing, they're going to be highly disappointed. It would be devastating to the sapphire industry."
Tackling these issues on this scale and schedule has never been attempted before.~~
"GTAT and the rest of the Apple supply chain involved in this new sapphire component indeed have to execute an unprecedented - for the sapphire industry - ramp up, both in term of scale and timeline," says Eric Virey, senior market and technology analyst for LED devices and materials at Yole Developpement, a market research firm headquartered in Lyon, France. "Execution will be key and a lot could go wrong. This ramp up is stressing the entire supply chain, including raw materials and component suppliers."
The big sapphire shift: from specialty to mass markets
Sapphire has been used in a variety of specialized applications for years, where its purity, clarity, high stable dielectric conductive properties, and high optical quality, along with its hardness, have made it worthwhile despite its relatively high price. It's been used in lasers, as covers for point-of-sale barcode readers at grocery store checkout aisles, in high-end watch faces, as the principal integrated circuit substrate for LED manufacturing, and more recently as a lightweight replacement for conventional "bullet-proof" glass in some military vehicles.
Some luxury smartphones, with luxury prices, have been released with sapphire covers, such as the new Tag Heuer Meridiist Infinity or the Vertu Ti. China-based Gionee early in 2014 was the first to release a barely-under $1,000 smartphone with a sapphire screen.
But no one has used sapphire in large-scale consumer electronics or consumer goods products. Apple created a sapphire cover for the iPhone 5 camera lens, and for the iPhone 5s Touch ID fingerprint sensor. It's mainly the sheer foundry capacity that Apple is creating in sapphire that fuels the speculation that it has big plans for sapphire in bigger uses as a replacement for the cover glass, presumed to be Corning Gorilla Glass, in at least the high-end iPhone model.
"We believe that GTAT Mesa plant has already started producing the sapphire slabs and that the supply chain is currently building up inventory," says Yole's Virey. "We expect full capacity operation at the beginning of Q4. Under our scenario, we expect Mesa to be able to provide about 30 million display covers by the end of September and a total of 42 million by year end (all numbers accounting for downstream manufacturing yields)."
(Virey goes into considerable more detail, on both the GTAT-Apple deal and the global sapphire market, in the March 2014 report, "Sapphire Applications and Market: From LED to Consumer Electronics," offered for sale by Yole.)
That's a capacity unheard of in an industry where sapphire is used as a pricey option in relatively small scale applications.
One example is Ocular LCD, of Dallas, which has used sapphire in its custom capacitive touch displays for medical device, point-of-sale, and gaming customers who have specific, demanding requirements. "It's highly scratch-resistant and impact resistant," says Shahna Kothapally, Ocurlar's vice president of engineering. "It's a nine on the Mohs scale [of mineral hardness]. Diamond is a 10. We've done impact testing and it's one of the best [materials] in terms of cover glass options."
One design challenge Ocular faced was due to the dielectric properties of sapphire. Dielectric is a measure of the relative "permittivity" of a material, which is an indication of how easily an electric field propagates through it (such as happens in a capacitive touch screen). A higher dielectric constant means more propagation, which also increases sensitivity. "The dielectric constant of the cover glass is very important in touch panel designs," says Kothapally.
Sapphire has a very high dielectric constant, higher than other glass substrates currently used for touch panel cover glass. "When designing with a high dielectric constant material such as sapphire, modifications have to be made to the touch sensor stack-up to get the optimum performance," she says. "Based on available thickness of the cover glass, adjustments must be made to the adhesive thickness between the touch panel and the cover glass. The sensor glass thickness must also be adjusted to keep the Y sensing electrodes further away from the finger -- from the surface of the cover glass -- for a balance in performance." ~~
The why of sapphire
So why is Apple treating sapphire as a strategic investment? Most of the reasoning on this question is speculative and inferential. A sapphire cover screen on at least the high-end iPhone model would seem to do at least three things for Apple, and its customers:
+ Minimize phone screen breakage. GTAT marketing documents claim that "Research indicated there is about a 12% probability that a smartphone display screen will break at some point during the first year of its use (for some models)." In the case of the iPhone's "in-cell technology" which now in effect blends the touch sensing panel with the underlying LCD assembly, replacing a broken screen can require replacing the entire display assembly, a costly process to Apple if the phone is under warranty, or to the phone's owner if it's not.
+ Warranty cost savings. "While broken displays are not systematically replaced, there are multiple anecdotal evidences that Apple stores do replace them on a case-by-case basis," says Yole's Eric Virey. "Estimates for the cost associated with those replacements vary from $500 million to $1 billion."
+ Improve the "user experience." A scratch-resistant, shatter-resistant cover has value to consumers, many of whom already routinely buy protective screens and cases for their iPhones, says Stone-Sunderberg. "I wear a watch with a sapphire face because I don't want it scratched," she says. "I have an iPhone and I spend $25 to buy a protective screen. That's the first thing a lot of us do. I'd be happy to have that built into the smartphone [via a sapphire cover glass] and would happily pay for it." (Aero-Gear offers its adhesive-backed Flight Glass SX Sapphire Crystal protective screen for the iPhone 4. 5 and 5S, priced at $69.)
There may be additional reasons. As noted by Ocular's Kothapally, sapphire's dielectric properties could lend themselves to improving the speed and accuracy of the iPhone's touch interface, and perhaps to supporting a wider array of gestures. And a sapphire cover glass eventually could be married with big changes to the underlying LCD technology, such as OLED or Quantum Dots, which are nanocrystals that can be used to create displays that are more accurate in rendering colors and use much less power than today's LCDs.~~
What will it all cost?
The biggest hurdle facing widespread use of sapphire in displays has been its high cost compared to the alumino-silicate "super glasses" such as Corning's Gorilla Glass. GTAT in fact got into the sapphire business with its 2010 acquisition of Crystal Solutions precisely to commercialize that furnace technology and make sapphire crystal more affordable, according to GTAT spokesman Jeff Nestel-Patt.
The company's mission in sapphire is to make it available more economically and in much larger quantities, he says. In 2013, GTAT began ramping up a new business: besides selling the furnaces, it's also using them to become a sapphire producer.
"They are very serious about trying to reduce the spot price of sapphire for five-inch or similar sized panels," says Vinita Jakhkanwal, director of mobile and emerging technologies for IHS, a business research firm. "That's the single most important factor for them to address."
"Most people who want sapphire are willing to pay a premium for it over other superglass options," says Paul Massey, senior vice president of sales and marketing at Ocular. "They'll pay a premium of 30% to 50% but not 200%. It's not a price point yet that will let it be taken to the mass market."
But Apple and GTAT seem set on doing exactly that.
The most extensive cost and price projections that are public seem to have been done by Yole Developpement, based on its own sapphire manufacturing cost model. According to Virey, and assuming a display size of 2.75 x 5.39 inches (larger than the current iPhone), the Yole model estimates that the initial cost is $6.40 per unit at the slab level, before the raw material is cut, polished, and processed.
If that turns out to be true, it's a huge achievement in cost reduction for the raw material. It ultimately hinges on squeezing the maximum number of high-quality wafers from each boule, and preserving them through the finishing process to assembly.
"We modeled a $17 cost initially for the finished part," Virey says. Adding in margins for the various supply chain partners, "we expect Apple to initially pay around $20 per part," he says. "That's a significant increase compared to an equivalent part made of Gorilla Glass, which should cost around $3."~~
If Apple releases sapphire for only the high-end iPhone model, and not for the c' variant, it could possibly pass the cost to the buyer in the form of a higher price. Or Apple could absorb the costs itself, reducing the iPhone's margin and hence its profitability at least temporarily. Virey notes that some of the added costs could be offset by savings in warranty costs due to fewer cracked iPhone screens.
In any case, Apple may be perfectly willing to absorb the extra cost. "We believe that when Apple introduced the first iPhone with a Gorilla Glass display cover, the cover cost was then over $10 per unit," Virey says. "It shows that when Apple believes in a new technology or material, they're willing to take a hit on the bill of materials costs. Of course, to commit for the long term, there needs to be a convincing cost reduction roadmap somewhere."
Apart from the economies of scale being realized by the Mesa factory, Apple may be looking to a GTAT technology, acquired in 2012 from Twin Creeks, which will emerge in 2015: Hyperion, an ion-deposition system that embeds a layer of ions just under the surface of a material like sapphire, and then "splits off" (or exfoliates, in GTAT jargon) an ultra-thin slice, which can then be laminated to a much less costly substrate of glass or other material.
Some bloggers and analysts speculated that Hyperion is already, or will be soon, part of the Mesa factory. But GTAT President and CEO Tom Gutierrez was explicit during the February 2014 earnings call that it was not. "Hyperion is not a major contributor to revenues in 2014," he said. In response to an analyst's question about Hyperion and the Mesa factory, Gutierrez said, "You're making a connection of Hyperion to the Arizona project. That's not a good connection."~~
The question of "when?"
Rumored 2014 announcement dates for the "iPhone 6" have included April, May, June, "summer", September, October, November and December. Historically, there is usually about 12 months between iPhone announcements, which points to September-October if Apple sticks to that pattern.
It is widely predicted, and for many, even expected that at least one 2014 iPhone will be fitted with a sapphire screen that's larger than the current 4-inch display for the iPhone 5s and 5c. Yole's Virey is one that believes Apple does plan to introduce this on a new iPhone in the fall of 2014.
But none of the evidence cited for such a belief is conclusive. Virey forecasts 42 million finished sapphire screens by the end of 2014, based on the furnace capacity being installed at the Arizona plant. In the October-December 2013 quarter Apple sold 51 million iPhones. Based on one estimate, about 12 million of those were 5c models, and about 36-38 million were 5s (the rest were 4s and 4 models). [For more on the 5c sales, see "The great 'iPhone 5c is a failure' freakout"]
Even if the sapphire screens are just for the high-end flagship iPhone, Apple isn't leaving much wiggle room for inventory adjustments. Ocular's Massey and Kothapally are skeptical that a sapphire-screened iPhone will appear in 2014.
Apple's sapphire ambition is immense but realizing that ambition means more than firing up a bunch of new furnaces. It means building a new strategic supply chain from scratch. The raw material requires major upstream investments and adjustments in order to be processed to the quality and yields that Apple needs to make its billion dollar bet payoff.
Everything that points to a 2014 sapphire iPhone can just as easily point to a 2015 sapphire iPhone.
John Cox covers wireless networking and mobile computing for Network World.Twitter: http://twitter.com/johnwcoxnwwEmail: john_cox@nww.com
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