Description After a false start in 2014, will Apple finally use sapphire display covers in 2016?WHY IS INVESTMENT IN THE SAPPHIRE DISPLAY COVER SUPPLY CHAIN CONTINUING?
In 2014, Apple, its partners and their suppliers spent close to US$2B to set up a sapphire display cover supply chain. GTAT built and installed 2135 ASF furnaces, while Biel and Lens deployed close to 200 wire saws and thousands of finishing tools and ancillary equipment. But the projects faced many problems and Apple eventually gave up on sapphire for its iPhone 6. The many reasons can be summarized as “too early, too fast, too much”. The project was ambitious in its timeframe and targeted outputs while many of the necessary processes and technologies in crystal growth and finishing were still at an early stage of development.
Yet the venture still set the stage for the future: the partners have developed unrivalled expertise on how to work with sapphire in high volumes and a cost-controlled environment. A lot was also learned with the manufacturing of the complex 3D-shaped Apple Watch cover.
In 2015, Apple will still represent 20% of global sapphire consumption with its iPhone and watch components. Lens Technology recently announced plans to raise US$942M and invest US$532M of the proceeds to further increase sapphire growth and finishing capacity. But the question remains: why use sapphire?
At more than 5x the cost of glass, benefits in term of breakages are still far from obvious and high reflectivity washes out displays. Sapphire won’t sell for a premium and increase Apple market share just on glamour and cachet. If the company eventually adopts sapphire, it means that it would have either demonstrated that it can improve breakage resistance vs. glass and/or develop entirely new functionalities enabled by some unique properties of sapphire. To exist and thrive, the display cover market needs Apple to take the lead and to succeed. Besides Apple, only Huawei seems in a position to lift this market up, although not to the same level. But alternative technologies are emerging, for example with various OEM covers providing their phones with superior scratch resistance.
The report investigates the recent trends on this market, including cost structure, investments and alternative technologies.
In 2015, LED still represents 76% of sapphire consumption but oversupply affects revenue and profitability.
Capacity has been increasing non-stop since 2009, despite prices being at or below cost for most suppliers since late 2011. The market is oversupplied by a 2-3x factor depending on product category. But the situation is complex: tier 1 vendors often operate at high utilization rates and keep increasing capacity whereas tier 2 operate at low utilization rates or not at all. Companies such as BIEMT and Sumitomo Metal Mining recently disappeared or exited the business. But the big winners for 2014 were Monocrystal, Aurora, Namiki, Rigidtech and Crystalwise, which all managed to increase volumes and revenue. Global revenue from core, bricks and wafers reached US$1.1B. Adding finished components produced by Biel, Lens, Crystal Optech and others, revenue reached $1.8B with a notable performance from Saifei which supplied the Kyocera Brigadier’s sapphire display cover.
Under strong price pressure, the sapphire industry successfully reduced costs – but prices are falling even faster. An 18% average selling price decrease in 2015 wiped out potential gains from a 16% volume increase in LED wafer shipments. We expect prices to keep decreasing, resulting in an LED wafer market remaining essentially flat in revenue despite a 5.2% CAGR increase in volume expected through 2020. Optical wafers will hardly help if our scenario of Apple phasing out its current sapphire fingerprint reader technology for an “In Display” fingerprint sensor materializes in 2018.
Who will set up capacity for Apple display covers?
As of July 2015, Apple is still actively working on the sapphire project and investigating the supply chain but hasn’t yet made a final decision. Our working assumption is that the company will launch a sapphire iPhone model in 2016. We estimate that this would require ~100M sapphire display covers over the year. We doubt that Apple will invest again in the supply chain the way it did with GTAT. This means that one or more suppliers need to step up and invest massively in growth capacity for a market that might or might not materialize. Despite the risk, many companies in China have announced large investments. Beside Aurora, DARX, EGing, Kingsun, Sunphire, and many more, Biel and Lens seem the most credible for now. Established sapphire makers have strong expertise and favorable cost positions but would need back up from investors or strategic partners to increase capacity. Whoever the winners are, the timeframe for a 2016 release is short. Capacity would need to be in place by spring 2016. The ~2,400 ASF furnaces available from GTAT and its affiliates remain an option worth considering. The current 165kg process cannot deliver the cost initially targeted by Apple but could still be competitive. But Kyropoulos is a moving target: Monocrystal just unveiled a 300kg process. Other technologies such as VHGF, EFG or ARC Energy’s new 300kg CHES design could also compete.
If the opportunity materializes, the sapphire market could increase more than 6x within the next 2 years. Otherwise, many suppliers that have been kept on life-support by investors or parent companies in the hope of seeing the market come to life will disappear rapidly. For now, brute force strategies are paying off: the survivors appear to be companies that can ship large volumes, sustain depressed pricing and maintain the ability to invest and position themselves for future growth while the weaker players disappear.
- Status of the sapphire industry evolution vs. 2014
- Recent capacity expansion plans, focus on China
- 2014 wrap up: winners and losers
- Sapphire display covers: do they make sense? Reviews of the pros and cons
- Display cover manufacturing cost: where do we stand? What’s achievable and what’s not
- Alternative technologies
- Detailed analysis of Apple Sapphire ecosystem
- How can Apple rebuild its supply chain to support display cover applications
The report provides a detailed analysis of:
- The status and prospects of the sapphire industry for LED, camera lens & fingerprint reader covers, smartwatch & smartphone displays
- Trends and drivers in established and emerging applications
- Apple’s ecosystem and supply chain & Options for a sapphire iPhone launch in 2016
- Sapphire supply & demand: Why so much capacity? Where are prices headed? What’s the impact on revenue? Who will survive?
- The key players (established and emerging)
- Geographical trends and characteristics
- Technology trends: crystal growth, wafer diameters, PSS