Hi Sam...the following is from Bloomberg....
I was pretty close on the amount of time it takes to make Sapphire. (about 18 days, post 48)
Now Apple could take over those furnaces in Mesa Arizona.....but that would be a time and money drain as they tried to get significant production.
It has not been mentioned by others, but consider this. There are only two Sapphire producers in the US...Rubicon and GTAT. If making Sapphire was such a simple thing there would have been dozens of Sapphire producers in the US. But there are not, because making Sapphire is a time consuming and money draining proposition.
From Bloomberg:..................
Apple’s Dream of Tough IPhone Glass Trips Up GT Advanced
By Tim Culpan, Tim Higgins and Dawn McCarty10 hours ago
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Apple Inc. (AAPL) stuck with Corning Inc. (GLW)'s glass in the newest iPhones after GT Advanced Technologies Inc. (GTAT) failed to deliver sapphire screens hard enough to work in the smartphones, a stumble that proved disastrous.
GT Advanced will tell a U.S. bankruptcy court today why a "severe liquidity crisis" forced it to file for Chapter 11, illustrating the pitfalls of a supplier changing its business model in order to make a new product for a single customer.
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GT Advanced reoriented its operations from supplying materials and equipment for solar panels and chips to making synthetic sapphire for Apple so that iPhone screens could be tough and scratch resistant. GT Advanced even lined up $578 million in prepayment loans from Apple to pay for the equipment to produce the material, which wasn't included in the latest version of iPhones.
Even before stunning investors with the bankruptcy filing on Oct. 6 and triggering a 93 percent drop in shares, signs of trouble began to emerge in August. While GT Advanced Chief Executive Officer Thomas Gutierrez said he was "very positive about our sapphire materials business," the company said a 1.4 million-square-foot Mesa, Arizona, factory wouldn't be fully operational until early 2015.
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GT Advanced said in a U.S. Securities and Exchange quarterly earnings filing that month it had "incurred significant costs" during the first six months of this year as it worked to convert the plant to produce the material.
"The Mesa operation is operating at a per-unit and total cost structure substantially above the targeted cost structure for the facility," the Merrimack, New Hampshire-based company said at the time. It cautioned that "if we are unable to remedy these production inefficiencies," a whole slew of things could happen, including defaulting on its deal with Apple.
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Sapphire ScreensGT Advanced unveiled a multiyear agreement on Nov. 4 to provide Apple with sapphire, the second-hardest substance on Earth after diamonds. GT Advanced shares jumped 21 percent on the news. While Apple never said publicly what it planned to use the glass for, the Cupertino, California-based company agreed in late 2013 to the prepayments to help GT Advanced set up the Arizona facility.
Synthetic sapphire isn't a common replacement for glass, owing to its higher manufacturing costs, and has traditionally been used for watches. Vertu Ltd., a maker of luxury mobile phones, was the first to adopt sapphire for its screens, while Apple has been using the material only for its Touch ID fingerprint readers.
Drop TestsApple had originally planned to use sapphire for the screen of its latest iPhone models before switching back to Corning's Gorilla Glass because of concerns that there wouldn't be enough supply, said a person with knowledge of the plans. The iPhone 6 and 6 Plus became available in September, selling more than 10 million units during their opening weekend, a record.
The sheets of sapphire produced by GT Advanced kept failing technical benchmarks, including drop tests, according to people familiar with both companies who asked not to be identified because the information is private. Weaknesses caused during the process of cutting and grinding is the main difficulty in sapphire and isn't a problem limited to GT Advanced, the people said.
Jeff Nestel-Patt, a spokesman for GT Advanced, declined to comment, while Apple said it was surprised by the bankruptcy filing.
"We are focused on preserving jobs in Arizona following GT's surprising decision and we will continue to work with state and local officials as we consider our next steps," Chris Gaither, a spokesman for Apple, said in a statement.
Technical ChallengesSynthetic sapphire is grown as a crystal in factories in a process that takes as long as 18 days to produce 100 kilograms (220 pounds). Its physical properties mean that the larger the piece, the more prone it is to splitting from the edges when microscopic cracks are introduced during the cut and grind process, the people said. Those challenges mean that a key test -- dropping the sapphire from a height -- reveals weaknesses and reduces yield, or the amount of material that can be used in final products.
Apple was so keen on making the arrangement with GT Advanced work that it had been working closely with the company, trying to overcome the technical challenges and to become cash-flow positive, a person familiar with the effort said.
Sapphire FurnacesWhile GT Advanced had enough furnaces to equip 10 million iPhone 6 Plus smartphones per production cycle, its yield rate was about 40 percent, according to LEDinside, a subsidiary of the Taiwan-based market-intelligence firm TrendForce Corp.
"The problem cannot be solved before product release," Roger Chu, research director of LEDinside, wrote in an e-mailed statement.
Manufacturing large amounts of sapphire wasn't GT Advanced's business prior to its relationship with Apple. GT Advanced had mainly sold raw materials and equipment to the solar industry, and the acquisition of Crystal Systems Inc., a manufacturer of furnaces used to grow crystals, in 2010 put them into the sapphire-material business.
The company's "sapphire business was traditionally based on designing and selling advanced sapphire crystallization furnaces, which are used to produce sapphire," GT Advanced Chief Operating Officer Daniel Squiller said in an affidavit filed as part of the bankruptcy. "As a result of a series of transactions with a key customer in 2013, the GTAT Group's sapphire business model shifted from being primarily an equipment manufacturer to also being a sapphire materials manufacturer."
In other words, GT Advanced went from manufacturing the tools to making the products.
Borrowed TimeTotal revenue from sapphire reached 62 percent during the first six months of the year, he said. In August, GT Advanced reported a second-quarter net loss of $86 million, about double the prior period and compared with a profit of $12 million a year earlier.
GT Advanced ended the second quarter with $333 million in cash and cash equivalents, and CEO Gutierrez said in August that the company was on track to end the year with about $400 million in cash. Instead, it finished the third quarter with about $85 million, according to a court affidavit.
"As you know from prior history, this business really starts to generate cash once the order flow and the revenue flow starts to move," the CEO said on Aug. 5.
Strings AttachedWhile Apple agreed to help fund GT's expansion through a series of installments, it also attached technical and performance metrics, according to GT Advanced's regulatory filings. A fourth payment of almost $140 million was due to be paid by Apple this month, according to GT Advanced.
"There can be no assurance that we will successfully meet the metrics in order to receive the fourth prepayment installment," the company said.
GT Advanced was set to begin repaying the money in January, either as cash or a credit against Apple purchases of sapphire material.
"Without significant sapphire revenue from Apple, we would still be required to repay in cash (on a quarterly basis) significant amounts of the prepayment amount beginning in 2015, which would limit our ability to invest in or operate other portions of our business, including our equipment operations, or to repay indebtedness at the time of maturity of such indebtedness," GT Advanced said.
The repayments could exhaust all of the company's cash and if GT Advanced defaulted, Apple would have the right to take ownership of manufacturing equipment. Apple could also cancel advance payments and demand repayment earlier if GT Advanced failed to generate sapphire material "to specification prior to an agreed upon date or we are unable to comply with certain financial requirements," the filing said.
Moreover, accelerated prepayments would probably also force GT Advanced to default on its existing debt, the company said in filings.
"This is one very massive undertaking that we've taken on," CEO Gutierrez said of the sapphire project in August.
To contact the reporters on this story: Tim Culpan in Taipei at tculpan1@bloomberg.net; Tim Higgins in San Francisco at thiggins21@bloomberg.net; Dawn McCarty in Wilmington at dmccarty@bloomberg.net
To contact the editors responsible for this story: Pui-Wing Tam at ptam13@bloomberg.net; Michael Tighe at mtighe4@bloomberg.net; Andrew Dunn at adunn8@bloomberg.net Reed Stevenson |
