The people of Liangzhu and Sanxingcun knew about sapphires long before the rest of us. Some six thousand years ago, the two tribes buried their most important figures with ceremonial axes carved out of corundum – a crystalline form of aluminium oxide known as rubies in red form and sapphires when blue. Archaeologists have marvelled at their ability to polish the axes to a mirror-like lustre, thousands of years before Pliny the Elder mentioned similar minerals in the West.
These ancient peoples may also have been able to teach a thing or two to their modern-day counterparts who have been struggling to create sapphire – albeit of an artificial variety – for use as display screens on gadgets like Apple’s new iPhone 6 and soon-to-be released iWatch.
In the run-up to the iPhone 6’s launch this autumn, tech blogs were ablaze with rumours that it would be the first smartphone to deploy a sapphire display.
As the world’s third hardest mineral – behind diamonds and moissanite – sapphire is extremely scratch-resistant, a key virtue where watches and phones are concerned. However, when the new phone was unveiled, it was revealed to rely on a standard ion-strengthened glass known as Gorilla Glass, which is supplied by Corning.
The effect on one key supplier was almost immediate, with Arizona-based sapphire producer GT Advanced (GTAT) filing for creditor protection on October 6. GTAT’s demise has not only stirred a headline grabbing legal battle with Apple in the US. It has also had a knock-on effect in China where various companies had been hoping to jump on the sapphire bandwagon by importing the foreign technology.
As the 21CN Business Herald reports, Chinese firms may have lost Rmb1 billion ($160 million) after opting to work with GTAT, which had been exporting its manufacturing furnaces to Chinese companies hoping to forge screens made from artificial sapphire. The problem? The newspaper quotes insiders who claim that the technical standards for the equipment never reached the levels stipulated in their contracts with GTAT, leaving the Chinese producers out of pocket.
So far, none of the Chinese firms have sued GTAT, unlike Taiwanese producer Tera Xtal, which was dissatisfied with its 98-furnace order in 2011. The two sides ended up in litigation, which was resolved in August when the Taiwanese producer was awarded full repayment on its contract plus interest. At the time of GTAT’s bankruptcy, Tera Xtal had received just under a third of the money owed. But 21CN is suggesting the Chinese producers have stayed silent on their own losses because many of them secured local government funding for the deals. They now fear this may get clawed back if the truth becomes widely known.
The newspaper cites the example of Guiyang Industrial Investment Group, which signed a strategic cooperation agreement with GTAT in 2011 and set up a wholly-owned subsidiary, Guizhou Haotian Optoelectronics, to build a sapphire producing plant.
After investing up to Rmb2 billion in the plant, the firm hoped to produce sapphire ingots generating annual sales of Rmb4 billion, equivalent to the output from GTAT’s own plant in Arizona.
But GTAT did not fulfill its order as promised, 21CN says. It also claims the equipment provided wasn’t able to generate sufficient sapphire yield to cover its depreciation costs. Production expenses have been averaging $8 to $9 per two-inch equivalent ingot compared to a selling price of just $3 per ingot.
21CN concludes that Guizhou Haotian’s problems are “commonplace” within the Chinese sapphire industry as GTAT sold furnaces to a number of other firms including Guangdong Saifei, Haining Shangcheng Technology and Zhejiang Haining. Other tech blogs are speculating that these producers may face financial problems too. One criticism is that the technology hasn’t proved suited to mass production. And having invested heavily in the belief that other smartphone producers would follow Apple’s lead in installing sapphire screens, it now looks less likely that Apple is going to be a pioneer.
In fact, there is controversy about whether Apple ever intended to use sapphire screens on the new iPhone in the first place. According to an article in TIME magazine, the consumer electronics giant realised early on that sapphire was a non-starter for a number of reasons. Chief among these is that while sapphire is more scratch resistant than Gorilla glass it is also more brittle and therefore prone to breaking when dropped.
TIME also comments that sapphire screens are 10 times more expensive to produce than glass and would have added $100 to the base cost of a smartphone. In addition, it explains that sapphire is denser than glass and doesn’t transmit as much light, which means that the need for greater illumination would drain the phone’s battery too quickly.
However, an article by Wall Street Forensics claims that Apple did intend to use sapphire displays for the iPhone 6. An unnamed source also argues that GTAT is blameless. According to the source, the real problem resides in China where two firms it partnered with had problems applying the scratch-resistant coatings.
Some of Apple’s suppliers may hope that GTAT’s bankruptcy hearings will throw light on the kind of costs, margins and legal agreements that their competitor forged with Apple. However, the Cupertino-based company has fought hard to keep its secrets under wraps. This has riled GTAT’s other creditors and shareholders who are still unsure why it filed for creditor protection in the first place. One investor group has already launched a lawsuit claiming that GTAT, “misrepresented and/or concealed its financial position, its ability to meet Apple’s requirements and its projections on manufacturing sapphire”.
Crucially Wall Street Forensics alleges the company was aware Apple would not be using sapphire displays when it conducted a conference call with financial analysts on August 5, but that it said nothing (Reuters has also explained GTAT’s subsequent silence regarding the dispute, given that GTAT’s agreement with Apple includes a $50 million fine for each breach of confidentiality).
Under the original agreement, GTAT was scheduled to receive $578 million from Apple through four pre-payments, enabling it to build the sapphire plant in Mesa, Arizona. This was the brainchild of Apple’s CEO Tim Cook, who has been keen to relocate some of the group’s production back to the US from China. Apple paid GTAT the first three payments but the fourth $139 million instalment was delayed after the company reportedly failed to meet technical thresholds. This delay may have tipped it over the edge.
GTAT lawyers have argued that Apple’s supplier agreement was “oppressive and burdensome” and the Financial Times says the company has asked the court to release unredacted details of its situation in the interests of “credit, equity holders and other stakeholders”.
A report in The Street suggests this will show that GTAT struggled to comply with Apple’s frequent changes of technical specifications.
The presiding judge, Henry Boroff, has also given Apple a week to come up with a list of the specific documents which it wishes to remain private. “I have documents stacked a foot high”, Bloomberg quoted him as saying. “It can’t be that all of it needs to be under seal.”
Many questions remain. Chief among them is what will happen to GTAT’s Arizona plant, where the company has already laid off more than 80% of the 1,089 staff. It was to have been the showcase for an industrial park in Mesa, a city hit hard when its home construction businesses were decimated by the financial crisis of 2007.
Local mayor Scott Smith may be ruing the day he celebrated bringing the plant to Mesa by laying red and green apples around its City Hall. But some analysts think Apple may still use the facility to produce sapphire for its forthcoming iWatch. One reason the watch may yet have a sapphire screen is that it is far less likely to be dropped than a phone. Perhaps that gives the Chinese producers new hope that their investment may not be entirely wasted. According to DigiTimes, global demand for sapphire in optical devices will rise from 12.44 million of two-inch equivalent ingots in 2014 to 26.2 million in 2015.
Most of this increase, it predicts, will come from the iWatch, which will account for 57.2% of total demand in 2015.
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