Some investors fear Corning may lose Apple as a significant
Gorilla Glass customer, Credit: Corning
sapphire supply agreement
GT Advanced Technologies
last November, speculation has swirled regarding what the folks
in Cupertino are planning for their next round of iDevices. Given
sapphire's superior scratch-resistant properties, one of the most
prominent theories unsurprisingly involves Apple replacing
's widely used Gorilla Glass as its protective cover of
Whether that actually happens in the near term remains to be
seen, which is why I've explored a number of plausible scenarios.
Early supply constraints, for example, could cause GTAT's
"only" find its way
into Apple's widely anticipated iWatch device, or perhaps
just in a higher-end iPhone
model. Alternatively, as one recent Apple patent indicated, Apple
could find a way for both GTAT's sapphire
Corning's Gorilla Glass to
in a single display cover that combines the best of both
Hints of losing Apple?
Of course, we can't know what will happen until Apple's expected
new product unveiling in September. But in the meantime, we
certainly can't rule out the possibility that Corning's Gorilla
Glass could be entirely displaced.
Corning turned in second-quarter results Tuesday, stating that
"Gorilla Glass sales were less than anticipated in the quarter,
due to lower retail demand for smartphones and high-end tablets,
lower-than-expected sales for planned new models
." [emphasis mine] As a result, sales for Corning's specialty
materials segment -- which includes Gorilla Glass -- came in at
$298 million for the quarter, relatively flat from the same
Even so, Corning still expects specialty material sales to
increase 10% sequentially in the third quarter as demand for
Gorilla Glass increases through the second half of 2014.
This glass house is stronger than you think
How badly would losing Apple's business hurt Corning? Not as
badly as you might think.
First, specialty materials revenue comprised less than 12% of
Corning's total $2.577 billion in second-quarter core net sales.
And though Corning doesn't specifically break down exactly how
much revenue it derives from each customer, its latest annual
report states that three customers accounted for 47% of the
segment's sales in 2013.
Even if we aggressively assume Apple accounted for even half
that total -- and if those percentages hold roughly the same
through today -- it would mean Apple was only responsible for
roughly $70 million in specialty materials sales to Corning in
the last quarter, or less than 3% of the glass maker's total
revenue. That's nothing to scoff at, but it definitely
doesn't merit the outright panic some Corning stock speculators
have seemed to indicate would be appropriate.
Corning's not out of the woods yet
This brings up another significant threat to Corning's Gorilla
Glass empire: other smartphone and tablet makers could eventually
follow Apple's lead.
Over the near term, Apple will almost certainly require
the bulk of GTAT's entire sapphire production capacity. But over
the long term, you can bet GTAT will be hard at work securing new
customers to expand sapphire's reach. If any of Corning's
existing Gorilla Glass customers should decide the value
proposition of sapphire is worth investing in as a
differentiating factor for their respective devices, Corning's
specialty materials segment will suffer.
In the meantime, however, Corning investors can take at least
some solace knowing at the very worst, losing Apple's support of
Gorilla Glass would only put a minor dent in its armor.
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If Apple Ditches Gorilla Glass, Here's What
Happens to Corning
originally appeared on Fool.com.
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