Shares of GT Advanced Technologies, Inc. surged 5.01% ($0.87) on August 19, 2014 following the news of Apple’s (AAPL - Analyst Report) yet to be launched iPhone 6 going into large scale production this month. Apple’s shares were up 1.20% ($1.18) following the news.
Per reports, Apple is all set to use the unbreakable and unscratchable Sapphire glass for making the cover of its new iPhone. Currently, Apple uses sapphire in the camera lenses and for the protective disk that serves as the Touch ID home button for iPhone 5S. However, nothing regarding whether sapphire will be used in iPhone has been clarified by Apple in public.
Based in New Hampshire, GT Advanced Technology is a diversified company that specializes in providing crystal growth equipment and solutions for the global solar, LED and electronic industries worldwide.
Earlier in 2013, GT Advanced Tech had entered into an agreement with Apple, per which the latter bought a 1.4 square foot facility and leased it out to GT Advanced Tech to be used exclusively to supply sapphire glass to Apple.
Moreover, Apple had agreed to prepay $578.0 million to GT Advanced Tech so that the facility is fitted with cutting-edge sapphire production furnaces. Apple, in return will be reimbursed by GT Advanced Tech for the same over a period of five years, beginning from 2015.
This initial funding from Apple was required by GT Advanced in order to manufacture Sapphire in large quantities as production of Sapphire in such large quantities, otherwise would have been very expensive.
Sapphire is a potential substitute for Gorilla Glass produced by Corning (GLW - Analyst Report) , which, in turn is currently used in the making of iPhone screens. However, since sapphire is more costly (approximately 7 times) than gorilla glass, we believe that Apple will be forced to hike iPhone 6 price in order to protect its gross margin.
However, this may dampen the demand for iPhone amid intensifying competition from the likes of Google (GOOGL - Analyst Report) and Microsoft, although market research firm Gartner expects the device to attract users who need a large screen. We believe that iPhone 6 will register strong sales in fiscal 2015.
Apple happens to be the biggest customer of GT Advanced Tech till date and banking on its iPhone 6, the company believes that the sapphire segment will contribute near about 80% of total revenues in the year fiscal 2014.
Currently, GTAT and Apple, both have a Zacks Rank #3 (Hold).