Apple is getting into the sapphire business—synthetic sapphire—by building a plant for a company called GT Advanced Technologies, Inc. The plant will be owned by Apple, but the equipment inside that plant will be owned and operated by GTAT in a multiyear deal financed by Apple to the tune of US$578 million.
Synthetically produced Sapphire is grown in a lab, but it has the same hardness as the naturally produced gemstones of the same name. That's 9 on the Mohs scale, and that means it's frakking hard.
A Sapphire Boule (what an ingot of the material is called)
Sapphire has been used for decades as "watch crystal" covers for watches, particularly high-end watches. Apple is currently using sapphire to cover the Touch ID sensor on iPhone 5s, but the size of the contract with GTAT makes it clear that Apple has big plans for sapphire in either its existing products...oh, who am I kidding? Think iWatch.
GTAT announced in a press release that it had entered into an unspecified "multiyear" agreement to supply Apple with sapphire material. GTAT said that it will repay Apple's $578 million loan over five years, but did not specify how long the supply contract itself will last. As noted above, Apple will build and own the plant—a separate expenditure not covered in the loan, which is for furnaces and other equipment.
This is the exactly the sort of thing Apple has been doing for years in Asia, where Apple either builds a plant and/or buys the equipment that is then operated by third party experts in the component industry. This allows Apple to maintain control over the products and the facility, while at the same time mitigating risk for the supplier.
By assuming that risk (in the form of paying for all the gear), Apple is also able to get even better prices on its components. This is all made possible by Apple's enormous cash hoard.
Apple has long acknowledged that it engages in these kinds of deals, but we don't usually get to see the details because they're happening off-shore. GTAT, being a publicly traded U.S. corporation, disclosed the deal in its quarterly earnings announcement.
Also, let me emphasize the fact that Apple is building this plant in the U.S. CEO Tim Cook has touted the fact that Apple has been bringing some manufacturing back to the U.S., and this another example of the company doing so.
On a more general basis, it's very interesting to see Apple make such a major investment in sapphire. As I said above, this simply has to be related to a new wearable product, most likely the much-rumored iWatch.
That said, Apple could also be expanding the use of sapphire in its existing product lines. Surely Touch ID will eventually make it to iPad and iPad mini, and Apple could even bring it the Mac line some day.
Now we can just sit back and wait for Samsung to announce that it also has a major investment in sapphire because it was way into sapphire before everyone else.