GTAT Insolvency Marks Uncertain Future for Sapphire Cover Glass, says TrendForce

U.S. sapphire furnace and sapphire manufacturer GTAT, the primary sapphire supplier to Apple, filed for bankruptcy on October 6. As of September 29, GTAT reported having US$85 million in cash. Under the US$578 million multi-year agreement GTAT and Apple signed last November, GTAT must supply a certain volume of sapphire ingots to Apple while Apple was to pay GTAT in four installments with the final US$139 million payment scheduled for the end of October. But low sapphire yield rates have made Apple withhold the last payment. Additionally, GTAT lost an American Arbitration Association (AAA) lawsuit against Taiwanese sapphire manufacturer Tera Xtal Technology in August. AAA ruled GTAT should return payment totaling US$24 million for faulty sapphire crystal growth furnaces, which greatly strained the firm’s finances.

There were some early warning signs of GTAT’s impending bankruptcy, said Roger Chu, research director of LEDinside, a subsidiary of the Taiwan-based market intelligence firm TrendForce. For instance, GTAT has nearly 2,000 sapphire growth furnaces, which in theory could equip 10 million 5.5” iPhone 6 Plus phones with sapphire cover glass. Yet the company’s sapphire yield rates were just 40%. Furthermore, the yield rate of the back-end glass process is still low and the problem can not be solved before product release. That explains the lack of sapphire cover glass in the new iPhone 6 and iPhone 6 Plus. Many GTAT and Apple employees involved in the sapphire cover glass project have been terminated as a result.

Apple is differentiating itself from its competitors by using sapphire cover glass in its products, said Chu. “Apple has already heavily invested in the technology and applied for many related patents, which can be seen in sapphire in the iPhone’s camera lenses, home buttons, and Apple Watch covers,” he said. “Introducing sapphire cover glass to the iPhone is plausible but more time is required to surmount the technical difficulties of the process.” If all goes well, the new-generation iPhone equipped with sapphire cover glass will be released at the end of 2015, Chu added.  

The three major challenges for sapphire cover glass are analyzed as below: 

1)    Sapphire crystal production capacity: Sapphire crystal growth technology is very important for suppliers in the sapphire supply chain, said Chu. Manufacturers that use the conventional Kyropoulos (KY) method, such as Monocrystal, Rubicon, Harbin Aurora Optoelectronics Technology and USI Optronics Corporation have mature sapphire crystal growth technology capable of reaching high yield rates. Despite the high yield rates, the KY method has low sapphire volume output, mainly since mass production would require many sapphire engineers to manually operate the equipment. Only a few manufacturers are capable of using this particular growth method to produce 90 kg grade sapphire crystal. “This is especially challenging for smartphones applications, which have relatively low product life cycle, and require mass production, and a main reason why KY manufacturers were ruled out by Apple in the first place,” Chu said. 

In contrast, GTAT claims its Heat Exchanger Method (HEM) sapphire crystal growth furnace is highly automated. The company is also capable of growing 200 kg and above grade sapphire crystals, which explains why Apple chose it as a partner. However, HEM yield rates were far below GTAT’s reported figures, and more time is required to overcome the technical difficulties.

If Apple wants to develop sapphire cover glass in the future, it needs to have a sufficient sapphire ingot supply. Current HEM, KY and Vertical Horizontal Gradient Freezing (VHGF) sapphire suppliers have all been certified by Apple. Therefore, if experienced sapphire manufacturers continue to increase supplies to Apple, they might even reach a stable supply agreement.

2)    Costs: A 5.5-inch and 500 um thick sapphire cover glass costs more than US$60, accounting for 7 percent of the total cost for an US$859 iPhone 6 Plus. For that reason, lowering costs is essential. GTAT has laser cutting technology which can make the sapphire cover glass thinner before laminating it with traditional glass. That can also help to lower costs. From a technological standpoint, it will still take some time before this method can be utilized in mass production. It is also important to look for additional ways to lower costs. 

3)    Glass Processing: Except for sapphire crystal growth issue, back-end glass processes include cutting, polishing, coating, and printing is quite crucial as well. The glass process is especially difficult because sapphire is a very hard material, but fragile at the same time and easily broken. Thus, processing manufacturers need to find solutions to reach mass production.