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Apple Bought $578M Worth of Sapphire
- IBM 13y agoThis is what makes it difficult to compete with Apple. These types of prepayments allow Apple to negotiate favorable deals for components that the manufacturer will happily sell at razor-thin margins. In order for the competition to produce an equivalent product on a hardware level, they would have to be willing to accept much lower margins than what they have. And there's no guarantee that they'll sell as well, making the investment in those materials risky.
- runako 13y agoApple competes against companies like Samsung (2012 ad budget: ~$4B) and Microsoft (2012 ad budget: ~$2.75B). This is not a lot of money in the markets where Apple competes.
- IBM 13y agoLike the article says, the $578M is just the prepayment. The total amount may be much greater. The facility itself was acquired from First Solar, who sold it at a loss, and it seems like Apple will be fronting the capital for the factory's construction. The deal also requires a minimum amount of capacity for Apple and also exclusivity for some unknown amount of time (perhaps the same 5 years), so it's unlikely that they'll be supplying anyone besides Apple. And this is just for one component, Apple likely makes these deals with all their suppliers.
- sc90 13y agoIts not the size of the money, its what the money does:gobbling up scarce resources in advance hence locking out rivals from crucial supplies.
- maxerickson 13y agoThe first phrase of the article is "Apple is building a manufacturing plant in Arizona". Space to build manufacturing plants is not scarce. They are actually even re-purposing one. I guess GT Advanced Technologies might have some scarce expertise.
- craigyk 13y agoI'm so glad I bought a bunch of GTAT a year ago.
- aaronbrethorst 13y agoWhat inspired you to buy stock in the company a year ago?
- craigyk 13y agoconvergence of three things really. When I heard the iPhone 5 was going to use a sapphire lens cover I decided to lookup more on the technology and found that GTAT had what looked like the best know-how in its manufacture. I had also previously seen a story on some tech being created by a company called Twin Creeks that looked pretty cool, and was surprised to see that GTAT had acquired it's assets. That made me think the company was being aggressive in it's pursuit of acquiring/developing cutting-edge manufacturing processes. Plus, I think solar power is a major part of the future and things will be pretty bleak if it can't deliver long-term, but I like to be an optimist, so why not put my money there?
- aaronbrethorst 13y agoVery interesting. Thanks for the insight!
- jws 13y agoIf I understand their business model, GTAT wanted to be in the furnace and process business and sell those to other companies that would do the manufacturing. It looks like no one wanted to be one of those companies. There is no "scarce" here. GTAT wanted to make and sell a lot of this capacity, they just couldn't get a buyer to risk their capital. From that standpoint it makes perfect sense for Apple to pony up. They want the end product. There is no need for a third company to take risk, provide capital, and make extra profit. Apple provides the capital, takes the risk.
- Moto7451 13y agoSapphire glass uses synthetic Sapphire so this is more like building another Gorilla Glass factory than hoarding the output from a Diamond mine. http://en.wikipedia.org/wiki/Sapphire#Synthetic_sapphire http://en.wikipedia.org/wiki/Sapphire#Synthetic_sapphire
- selectodude 13y agoApple just purchased 15 percent of Samsung's entire worldwide advertisement budget in just sapphire. That's a pretty enormous chuck of change, even for massive corporations such as Samsung.
- mcintyre1994 13y agoFor comparison's sake, Apple's ad budget in 2012 was $1 billion [0], so they just purchased almost 60% of their own advertisement budget in just sapphire. [0] http://www.sec.gov/Archives/edgar/data/320193/000119312512444068/d411355d10k.htm http://www.sec.gov/Archives/edgar/data/320193/00011931251244... ("Advertising costs are expensed as incurred. Advertising expense was $1.0 billion, $933 million and $691 million for 2012, 2011 and 2010, respectively.")
- r00fus 13y agoHow is this bold in comparison to Google buying Motorola for $12B on the premise that it afforded patent protection? Apple's move here is a solid move to secure supply of a key material/component for their devices. Meanwhile Moto has yet to produce a profit, much less meaningful patent protection for Google.
- lttlrck 13y agoThose figures don't mean those companies have half a billion dollars to spend on sapphire. Edit: and that is just the prepayment.
- haldujai 13y agoMicrosoft has $77 billion in cash reserves[0]. I assume this is pre-Nokia purchase but that doesn't change the fact that they could have done the same thing if they wanted to - they just didn't. It wouldn't make sense either as they don't manufacture to my knowledge. [0] http://www.geekwire.com/2013/apple-controls-10-percent-corporate-cash-microsoft-place/ http://www.geekwire.com/2013/apple-controls-10-percent-corpo...
- philwelch 13y agoNot sure why the total advertising budget for companies with radically different product sets should meaningfully compare in any way with the cost of preordering a single material in bulk.
- runako 13y agoI used ad budget as a proxy for a firm's discretionary cash flow. If you wanted, you could instead look up other financial figures and choose another proxy. For instance, Samsung had 2012: Revenue: $268 B (17% of S. Korea's GDP) Net Income: $26 B Total Assets: $470 B My point is that the companies Apple is competing against don't make these moves because they don't have the financial resources, it's because moves like these don't fit into their overall strategic plans.
- jamra 13y agoI believe they are holding off antitrust lawsuits due to Android having higher global market share. I find it odd because Apple has higher share in the US and a near monopoly on tablets.
- r00fus 13y agoApple has a higher share in the US (40%) compared to other manufacturers, but Android is dominant (51%) vs. iOS. Regarding tablets, I'm surprised more Android tablets didn't target the Asus Transformer/Chromebook form factor - seems like an area where Apple wouldn't want to tread (to not cannibalize their Macbook sales).
- crbnw00ts 13y agoAnd yet they were at one time the low-volume underdog. People scoffed at them when they first started making iPods and again later with iPhones (even though there were fewer doubters by the time the iPhone came to be, there were still some). They clawed their way up to where they are now over the last 15 years, pretty much "back from the dead". During much of that time, their products were higher priced than their competitors due to the same supply & volume constraints you are describing, only against them instead of in their favor. Now it seems the shoe is finally on the other foot. If they can make it, so can any other company.
- bergie 13y agoExactly. I remember very similar supply chain locking stories about Nokia at its heyday. Didn't help them much when market shifted
- sjtgraham 13y agoThis only matters as long as Apple continues to make products consumers want most. If (as many speculate) this changes once the product pipeline that Jobs oversaw before his death is exhausted, the Cook supply chain dominance won't really matter; less people will buy Apple products and Apple's power to make these sort of plays diminishes. If Apple continues to make products consumers want most, then who cares about supply chain coups? Everyone else has a bigger problem on their hands.
- IBM 13y agoThe supply chain enables Apple's products and is a competitive advantage that isn't easily replicated by others.
- eitally 13y agoBut there are implications, human ones: http://www.businessweek.com/articles/2013-11-07/an-iphone-tester-caught-in-apples-supply-chain http://www.businessweek.com/articles/2013-11-07/an-iphone-te...
- csmuk 13y agoI wish people would repost the above more. Knowledge of this is one reason I tend to grab second hand stuff on the way to the skip rather than fish out for new kit every year.
- d23 13y agoIsn't this the case with big players in any industry that have greater purchasing power?
- bowlofpetunias 13y agoIt's not the money that gives Apple the edge here, it's the "innovation" (let's leave the debate about whether Apple innovates or just improves/repackes aside for now) that allows them to pre-empt the need for those components. Apple is still enough ahead of the competition in the product development department that they start making these deals long before anyone else. Plus of course the manufacturers trust Apple to actually take delivery of all and more based on the success of the past. Being able to put up the money for those kind of prepayments is about the only area in which competitors can match Apple.
- philwelch 13y agoThis is a classic Apple maneuver, too. During the heyday of the iPod Apple regularly cornered the market on NAND flash, and they also paid Corning to bootstrap production of Gorilla Glass for the first iPhone.
- loceng 13y agoAre you IBM's official HN account? Just curious.
- dl_terp 13y agoI think this is very similar to the creator of liquid soap. He knew that no patent could keep this out of his competitors' hands so he bought out essentially every pump liquid dispenser bottle maker. Looking ahead to see where the need is going to be (not where it is) is an old trick which has withstood the test of time. "I skate to where the puck is going to be, not where it has been." Wayne Gretzky
- thaumasiotes 13y agoThis seems a little more like investing heavily in a company that manufactures pump-dispense bottles. It's hard to see how it could reduce availability.
- masklinn 13y agoBy investing heavily in the company they lock in an exclusivity contract. They essentially buy all the production capacity of the only significant producer. In increases global availability, but all that availability is going to them, so everybody else sees reduced availability.
- alex_doom 13y agoI look forward to my phone screens breaking less.
- hcarvalhoalves 13y agoCan it be used on more than screens and lenses?
- BadassFractal 13y agoThis was the obvious next step for touch-based devices. Sapphire production seems to have gotten really affordable recently, and Gorilla Glass never truly delivered shatter protection, mostly scratch protection. The Ubuntu Edge was going to be the (possibly?) first phone to offer a sapphire, so it's good to see others pick up the idea as well.
- Osmium 13y ago> Gorilla Glass never truly delivered shatter protection, mostly scratch protection Sapphire will certainly offer more scratch resistance, but I'd be more skeptical about shatter resistance for now...
- jandrewrogers 13y agoNo reason to be skeptical. Sapphire is commonly used as a high-end alternative for bulletproof glass in armored vehicles. While it is a lot more expensive than bulletproof glass it is also much more resistant to weapons fire, which suggests its durability.
- sbuk 13y agohttp://www.youtube.com/watch?v=AAdku9YhSCI http://www.youtube.com/watch?v=AAdku9YhSCI
- stephencanon 13y agoUbuntu Edge was vaporware, and it was never going to be the first phone to anything. The gulf between "oh yeah, it's going to have a sapphire screen and the best processor ever and photon torpedoes" and actually doing the necessary engineering before ramping up to hundreds of millions of dollars in production is enormous. Companies that ship real products aren't just now "picking up the ideas as well" -- any technology that you see getting significant investment has clearly already been in development for years. Vertu has offered sapphire screens for a while now.
- quellhorst 13y agoCould it just be that apple is going to make a watch and will use sapphire crystal for the watch faces? This is already very common on watches.
- danielsju6 13y agoThis was my immediate thought as well.
- aaronbrethorst 13y agoThe article made a similar comment.
- nielsbot 13y agoI thought sapphire was much more brittle than glass, so more prone to shattering. Does someone here know if that's true? Would it be a problem for iPhone/iPad sized pieces?
- craigyk 13y agonot much more, and more brittle than gorilla glass which isn't regular 'ole glass IMO. Way way more scratch resistant though, so again IMO, totally worth the tradeoff if price isn't a factor.
- arrrg 13y agoFor larger displays being shatterproof seems like the more important problem to me. Scratches are already hardly a problem with glass (I get the impression that tiny sharp rocks are pretty much the only thing that can cause problems in the environment those displays are usually in, so to avoid most scratches one has only to avoid laying the display face-first on some dirty/hard surface and sliding it around) and even then a few scratches are not as much a problem as a shattered screen. Shattering is much more fatal to the device and it often only takes one or two drops and the glass shatters. Being absolutely scratch resistant is a desirable property for a camera lens (which is also much, much smaller and thus much less likely to shatter). It doesn’t seem like such a desirable property and good tradeoff for screens, at least not as long it isn’t as shatterproof as the best glass. In many ways I tend to think that scratches are a solved problem on mobile devices. Current glass is good enough. Shattering is not. (I’m not gentle to my devices but my 18 month old iPad has practically no scratches. Some are faintly visible if you look at it from certain weird angles. However, the glass of my previous iPad did shatter from a 1 meter or so fall of the edge of the device on tiles. Also, I see people using phones with shattered screens all the time. It seems to be a quite common occurrence.) Yeah, improving scratch-resistance further would be awesome, but only if there is no trade-off with being shatterproof.
- lostlogin 13y agoIf scratch resistance could be greater it would be very useful. My screen on my older phone has some deep scratches from keys in my pocket - something I now avoid - and hard labour. Smashing concrete, heavy lifting etc when you have a phone in your pocket is brutal on phones. Its a terrible environment for a phone, but I try to get stuff done even when on call. I have checked the screen on a builder I know too, and he has scratches too.
- colinbartlett 13y agoAt least $578M. Because they made a $578M downpayment toward an unknown future quantity and value of sapphire over the next 5 years.
- analog31 13y agoSo far as I know, sapphire is also used as a substrate for growing some kinds of semiconductors. Here, the optical clarity isn't as important as the chemical purity, but clarity and purity go hand in hand for sapphire.
- salem 13y agoAnecdotally, I also heard today that synthetic sapphire/ruby gems have become difficult for jewelers to source. Maybe someone (Apple?) is already soaking up higher purity raw materials for sapphire production.
- maxerickson 13y agoThe raw material is just aluminum oxide. I would guess someone repurposed their production or is having problems with their production.
- reeses 13y agoIt's always difficult, especially for smaller jewelers in the US. We were lucky for several years with sapphire production, allowing us to have sapphire crystals and display backs in watches for very low prices. Pivots have started to move up in price, enough that it's almost worthwhile to do your own bushing (which is fun anyway). Now you're seeing "mineral glass" back on the upswing in lower priced watches. Leica started using sapphire for the cover on its displays on the M9p and M8.2 cameras a few years ago, so I'm sure that general industrial consumption has increased among manufacturers producing long-lived products with LCD displays in dusty/sandy/etc. environments.
- horsemouth 13y agothe second i saw the article title my first thought was watches as sapphire is used for both for the crystal and the pivots.
- sytelus 13y agoWhat is cool about this is how much of technology required for all little tiny parts of modern devices. Who knew a camera lens is made up of Sapphire? I wonder how many elements from periodic tables would be checked off when making an iPhone. Just thinking about this, there were probably 100s of innovations just to mine and purify and machine sapphire in past 100s of years so that in 2000s we can finally produce acceptable quality tiny camera lens. Same thing goes for Gorilla glass, motion sensors and so on. I would probably bet that if we needed to make a document that describes every technology required to make an iPhone starting from how to make a fire so that a caveman can follow it by the line and produce an iPhone, it would probably a 100 million pages.
- twerquie 13y agoHave it on my desk Monday morning.
- marcosdumay 13y agoMined sapphire is not useful for using as a lens as you can't purify it - it must be made pure.
- micampe 13y agoOn that vein, an essay on how a pencil is made: http://www.econlib.org/library/Essays/rdPncl1.html http://www.econlib.org/library/Essays/rdPncl1.html «I, Pencil, simple though I appear to be, merit your wonder and awe, a claim I shall attempt to prove. In fact, if you can understand me—no, that's too much to ask of anyone—if you can become aware of the miraculousness which I symbolize, you can help save the freedom mankind is so unhappily losing. I have a profound lesson to teach. And I can teach this lesson better than can an automobile or an airplane or a mechanical dishwasher because—well, because I am seemingly so simple. Simple? Yet, not a single person on the face of this earth knows how to make me. This sounds fantastic, doesn't it? Especially when it is realized that there are about one and one-half billion of my kind produced in the U.S.A. each year.»
- pbhjpbhj 13y agoI seem to recall there's a similar essay for Coca-Cola.
- oneiric 13y agoI thought the capital 'S' "Sapphire" referred to a company. A lowercase 's' would clarify that (title grammar conventions aside).
- sethhochberg 13y agoIn particular, Sapphire Technology is a major manufacturer of AMD GPUs. That would have been very interesting. http://www.sapphiretech.com http://www.sapphiretech.com
- loceng 13y agoIt worries me as to what Apple will be doing with this Sapphire. Anyone have any insights about this?
- daeken 13y agoThe article spends the majority of its words explaining exactly what you're asking.
- loceng 13y agoThat just seems like an awfully large amount of screens they're planning to produce for if that's their sole purpose.
- chrisoverzero 13y agoThey're going to use it to build city-destroying lasers, and hold world capitals for ransom. Wielding such destructive power from its new "spaceship" campus, Apple will make the entire Earth into a walled garden. They're going to build consumer electronics with it, of course. What is possibly worrying about that?
- loceng 13y agoThanks for the laugh. There's too much to explain what it could be used for instead. All in time we'll all find out.
- specialist 13y agoIs it practical to make eyewear (glasses) lenses from sapphire? I'm brutal on my glasses. I'd happily pay for tougher lenses. Though I did see mention that the failure mode for sapphire is lots of shards flying. So maybe I'll wait.
- masklinn 13y ago> Is it practical to make eyewear (glasses) lenses from sapphire? They would be way heavier than good polyc lenses, yet more expensive than basic (heavy) glass. I doubt there's much of a market, but might have more luck/info asking manufacturers directly (essilor, leitz, nikon, zeiss, ...)
- stesch 13y agoMy watch has sapphire glass. It is a few years old and not a single scratch is visible.