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Mar 13th, 2014
“The sapphire industry to benefit but not everybody will win”, says Yole Développement
Sapphire Applications and Market: From LED to Consumer Electronics report from Yole Développement
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With display applications, total revenue from polished sapphire products could grow at a 50% CAGR through 2018 and exceed US$5B. Sapphire is now a strategic material for Apple that it will use as an element of differentiation versus Samsung and other competitors. With the Mesa plant, Apple is creating its own supply chain, sheltered from any risk of shortage or price increase. But a second source is needed. “We therefore expect other sapphire makers to increase capacity and join the Apple supply chain in the next few months”, explains Eric Virey, Senior Analyst at Yole Développement.

Eric Virey is the author of the report “Sapphire Applications and Market: From LED to Consumer Electronics”, released by Yole Développement, beginning of March.

There’s still a risk associated with the unprecedented ramp up that GTAT and their suppliers committed to. Even a few months from its targeted full capacity operation, Apple could still walk away from the project. In addition, sapphire needs to deliver its promises of stronger displays. Bloggers can be creative in their ways to destroy phones and if initial reports don’t show a noticeable improvement in breakage rates, it will create a negative perception of the technology.

The impact of Apple’s commitment to sapphire is positive for the industry. It brings a lot of visibility to sapphire and could spur new applications. “But we must guard against the notion that everybody will benefit: 2014-2015 will be good for those with efficient cost structures that position themselves in the supply chain”, says Eric. Shortages might occur if other cell phone OEMs decide to use sapphire as well. Their volume needs will be too small to justify an Apple-like investment so they will tap into the existing supply chain, even a small % of adoption will lead to vast amounts of sapphire per the industry standards.

Now that the deal is sealed, it is in the interest of other sapphire vendors that GTAT and Apple succeed: the Mesa plant provides unprecedented economies of scale and expertise in high volume sapphire manufacturing. If Apple was to use less sapphire than anticipated, GTAT might flood the market with unused capacity at very competitive prices. The report thoroughly analyses the impact on the sapphire industry and supply chain.

The GTAT/Apple partnership will likely impact Corning. But it doesn’t signifies the slow death of Gorilla Glass. Corning retains a strong foothold in mobile devices and has a close relationship with Samsung. While the latter clearly investigated the sapphire option, it seems to have adopted a differentiation strategy based on curved and flexible display, features that are likely to remain best served by the large portfolio of glass materials offered by Corning (Sapphire is a crystal, not a glass!)

In addition, with the current technology, sapphire cost would be prohibitive for larger displays like tablets, e-readers, laptops etc… For mobile phones, the material still needs to prove itself in term of performance and appeal to the consumer. Finally, while Apple might be willing to initially absorb the significant hike in bill of material triggered by the adoption of sapphire, the ability of GTAT and other participants in the supply chain to deliver on what is surely a very aggressive cost reduction roadmap will be key for securing the long term future of sapphire in mobile applications beyond watches, smart or not.

More information about the report here



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