Why Apple’s New Sapphire Manufacturing Agreement Is a Big Deal

Earlier this week, Apple announced a multiyear alliance with GT Advanced Technologies that will see the company manufacturing sapphire material at a new Apple facility in Mesa, Ariz. With prepayments of approximately $578 million to GT, this is a significant deal for both companies — perhaps even more so than originally thought.

During a Monday earnings call, GT revealed a few bits of data that suggest it is rejiggering its entire business model around sapphire production. As Cantor Fitzgerald analyst Brian White noted today, GT’s sapphire business accounted for 11 percent of its year-to-date sales — about $28.9 million in revenue. But, in forecasting 2014 revenue, the company said it expects to make $600 million to $800 million, with 80 percent of those sales attributable to its sapphire business.

In other words, following the signing of this new deal with Apple, GT’s sapphire segment will not only become the company’s main source of revenue, it will also drive a stratospheric spike in it. 2014 sapphire-related revenue at GT is expected to hit $480 million at the low end, and $640 million at the high end. That’s a 15x to 16x increase.

That dramatic uptick might not be entirely attributable to GT’s new materials business with Apple. GT describes its sapphire segment as including its ASF equipment business as well as its LED, industrial and specialty-materials business.

But note this: The company was already in all those businesses last quarter. There may well be other variables here, other new contracts, but the big one is this new deal with Apple. And that would seem to suggest that Cupertino has big plans and broader uses for the sapphire material it today uses only in camera lenses and fingerprint-recognition buttons.

As I noted on Monday, Apple is rumored to be looking at sapphire as a replacement for Corning’s Gorilla Glass in its next-generation touchscreens. This deal with GT — and the company’s agreement to fast-track development of new high-volume sapphire-manufacturing equipment — could presage that. Or it could herald a new device entirely — the long-rumored iWatch, for example, or whatever gadget Apple has planned for our wrists