Sapphire Applications & Market:
from LED to Consumer Electronic – August 2014 Edition
Apple saved the sapphire industry in 2013 and could transform it in 2014.
Will the revolution happen?
WHAT’S NEW COMPARED TO LAST EDITION?
Updated analysis of new consumer electronic applications: smart watches, camera lens and fingerprint reader covers, and display cover
New application: sapphire as a packaging substrates for LED filaments.
Updated analysis of the GTAT/Apple partnership: display cover manufacturing cost modeling, supply chain capacity analysis, yield impacts and paths to cost reduction
Apple sapphire patent analysis
Recent sapphire substrates price trends
Updated supply and demand analysis.
APPLE SAVED THE SAPPHIRE INDUSTRY IN 2013…
The sapphire industry recently ended a long period of depressed pricing and achieved US$936 million in revenue for wafer products in 2013. Recovery was helped by an increase in LED demand due to accelerating adoption in general lighting and a resilient LCD backlight market. But the saving grace was new consumer electronic (CE) applications: camera lens and fingerprint reader covers, mostly driven by Apple in 2013. Adoption at other vendors is progressing at a slower pace than anticipated in 2014. LG even reversed the trend with its flagship cellphone: its G2 model featured a sapphire lens cover but the G3 uses glass. However, we are optimistic for the mid-term with adoption increasing in Taiwan and China. In addition, new applications such as LED filaments could further increase sapphire consumption.
After almost 2 years of losses, the price of sapphire cores increased more than 50% in 2013. In Q2-2014, tier-1 sapphire vendors were finally selling at breakeven prices. However, we expect that prices will decrease again in Q4.
The updated report provides historical price trends and forecasts for cores and wafers, detailed capacity and revenue analysis, rankings and market share, as well as a thorough supply vs. demand analysis.
…AND APPLE COULD COMPLETELY TRANSFORM THE INDUSTRY IN 2014…MAYBE.
In November 2013, GTAT and Apple announced a partnership to set up a large sapphire manufacturing plant in Mesa, Arizona. Our thorough analysis concluded that the objective of the investment is to produce sapphire display covers for cell phones.
Apple plans to introduce both a 4.7” and a 5.5” model this year. We believe that prices for the sapphire cover have been agreed upon and locked by contract, based on yield assumptions reflecting reasonable expectations from all partners. We used yield assumptions derived from other Tier-1 sapphire makers in the LED industry to model the cost for both sizes. For the finished 4.7” display, we estimate a cost of $16, including $6.7 at the slab (material) level. On the longer term, we see a path for <$13. Under those assumptions, we also estimate that the supply chain could deliver more than 5 million display covers per month.
But the challenges in term of ramp up execution are unprecedented in the industry. Recent checks point to bottlenecks at various levels of the process with lower than anticipated crystal growth and finishing yields. As of August 2nd 2014, we estimate that the supply chain capacity is currently ~2.1 million units per month. If yields don’t improve rapidly, Apple walking away from sapphire is still a possible scenario. We believe that moderate quantities of supplemental material is currently being sourced from GTAT equipment customers in China. But even if all partners manage to improve yields rapidly, we still exclude the possibility that sapphire can be used on all models of the new 2014 iPhone.
However, we still expect that at least one model (SKU) will be offered with a sapphire cover. This would allow Apple to plant a stick on the ground and make a statement. Scarcity could even be a good marketing tool providing it doesn’t last too long and that the supply chain catches up quickly. Releasing at least one SKU with sapphire would allow Apple to gage customer response and decide if it should adopt sapphire on more models, plan for more investment in the supply chain or simply walk away.
For the procurements of wafers for camera lens and fingerprint reader covers, Apple is now taking a back seat and letting their Chinese finishing contractors handle the sourcing. This resulted in accelerated commoditization (strong price pressure) and shifted large volumes toward Chinese sapphire vendors. Combined with current high levels of inventories, this has significantly impacted established vendors since the beginning of the year.
Procurement has started for the iWatch and is so far mostly benefiting Chinese vendors as well. Various designs have surfaced including one with a curved display (“2.5D design”) which would be more expensive to produce. In any case, we expect that Apple will keep tapping into the existing supply chain and let GTAT focus on display covers.
The August 2014 update report includes a thorough analysis of the GTAT/Apple deal. It explains key hypothesis of our cost model and provides thorough yield sensitivity analysis for cost and capacity. Cost, capacity and revenue models are presented for both 4.7” and 5.5” displays.
THE SAPPHIRE INDUSTRY TO BENEFIT BUT NOT EVERYBODY WILL WIN.
With display applications, total revenue from polished sapphire products could grow at a 50% CAGR through 2018 and exceed US$5b. If successful, Apple will use sapphire as a strong element of differentiation versus Samsung and other competitors.
The impact is positive for the industry. It brings a lot of visibility to sapphire and could spur new applications. Samsung and LG are currently perplexed by Apple commitment and show no signs of following suit in the short term. If this was to change, their scale would require that they perform a similar move to Apple and set up their own supply chain. Sapphire shortage might occur if Tier-2 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 require vast amounts of sapphire.
The updated report analyzes the impact on the sapphire industry and supply chain.
OBJECTIVES OF THE REPORT
Trends and drivers in established and emerging applications
Apple and GTAT invested more than US$1 billion in sapphire manufacturing. Will the iPhone 6 have a sapphire display cover?
Drivers for adoption of alternative LED substrates (GaN and Si)
Sapphire supply & demand trends: Where are prices headed?
Identify and know the key players (established and emerging)
Geographic trends and specificities
KEY FEATURES OF THE REPORT
In-depth analysis of the GTAT/Apple deal: cost, capacity and revenue models, status, IP.
Detailed analysis of sapphire for: LED, SoS, camera lens & fingerprint reader covers, smart watches, LED filaments, display covers.
Volume & revenue through 2019 for all segments
Supply/demand, company revenue & capacity rankings
Wafer diameter and geographic breakdown, MOCVD capacity
PSS supply chain
Alternative LED substrates: requirements, status, players, cost of ownership modeling, forecasts.