Why Apple's Recent Patent Application Is Good News for GT Advanced Technologies
Apple recently filed for a patent with the U.S. Patent and Trademark Office that aims at strengthening sapphire glass. Earlier this month, Apple surprised many when it unveiled its iPhone 6 and 6 Plus models without sapphire as the primary display in favor of Corning's Gorilla Glass. While this was viewed as bad news for Apple partner GT Advanced Technologies , causing the company to lose nearly one-third of its market capitalization, this new patent could open new doors. This bodes well for GT Advanced shareholders.
GT Advanced is a small company that sells and leases equipment that makes various forms of crystals. Its polysilicon and photovoltaic equipment are used in the solar industry, which has been GT Advanced's primary market for several years. However, since the Apple partnership, consumer electronics has become GT Advanced's biggest market thanks to its sapphire-producing furnaces. During its last quarter, sapphire-related equipment orders totaled $72 million, up significantly from $29 million year-over-year.
What's the patent?
Earlier this year, Apple applied for a patent on a technology that hardens sapphire glass used on its products. According to patentlyapple.com, Apple has since filed an additional patent application that adds yet another layer of protection. This latest patent application covers a technology of various materials invented by Apple that can strengthen sapphire glass, and can be used on top of the first layer of protection.
A recent study from UBreakiFix found no net benefit of sapphire over Gorilla Glass in terms of impact resistance. And Jeffrey W. Evenson, senior vice president of Corning, has said that "Gorilla Glass requires about three times more force to break than sapphire after both materials have received similar wear and tear." Therefore, it would appear that Apple's patent activity is aimed at solving the fragile nature of sapphire.
Apple's sapphire partnership
Apple has invested in sapphire during the last year with a $578 million partnership with GT Advanced Technologies. In the partnership announced late last year, GTAT entered a multiyear agreement to supply Apple with sapphire material. GT owns and operates furnaces and related equipment to produce the material at an Apple facility in Arizona. GT will reimburse Apple the $578 million over five years, starting in 2015.
When the partnership was announced, many investors thought that the size of Apple's investment implied that sapphire would be used to replace Gorilla Glass on the upcoming iPhone 6 models. Sapphire is more durable, thinner, and more scratch-resistant. However, sapphire was not used on either model of the iPhone 6, and the reason is largely believed to be its tendency to shatter if dropped from relatively low heights.
A large range of possibilities
Apple's patent applications show a willingness on behalf of the company to fix this problem, perhaps indicating its desire to eventually replace Gorilla Glass, or use sapphire in future products. As noted by patentlyapple.com, if Apple's patent application is approved, the invention would cover "tablet computer, notebook computer, instrument window, appliance screen and the like. Additionally, the device may include non-electronic devices such as mechanical watches, which utilize a similar hard window."
With such a large range of potential uses, the possibilities are endless for sapphire as it relates to Apple products. The only downside for GT Advanced investors is that the immediate gratification of seeing sapphire on Apple's best-selling product has not occurred, as the implications of the Apple Watch -- which uses scratch-resistant sapphire glass -- are still very much speculative.
Tim Cook recently said during an interview with Charlie Rose that Apple has a robust product pipeline, including products that have not yet been rumored by the media. Considering the patent language, such as non-electronic devices and appliance screen, it's very possible that Cook is right. In essence, Apple is one of the most innovating companies in history, and could very well be working on products that exceed the consumer's imagination -- those where a less-fragile sapphire might play an important role.
If Apple goes into mass sapphire production with sapphire-related products, it is good news for partner GT Advanced. As of now, sapphire is only used on home buttons, camera lenses, and as the display on the Apple Watch. However, Apple's intellectual property activity might imply big plans for sapphire long term.
GT Advanced would be the direct beneficiary. During GT Advanced's last quarter, its sapphire-related equipment orders soared to $72 million from $29 million last year. Because we know the Apple Watch uses sapphire, it's very possible that GT Advanced's increase in such sales were in large part created by Apple. Therefore, in looking at the years ahead, if Apple introduces new sapphire-related products, then GT Advanced looks like a solid long-term investment opportunity, one that can reap the rewards of a stronger, more durable sapphire glass.
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The article Why Apple's Recent Patent Application Is Good News for GT Advanced Technologies originally appeared on Fool.com.Brian Nichols owns shares of Apple. The Motley Fool recommends Apple and Corning. The Motley Fool owns shares of Apple and Corning. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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