Apple’s sapphire production will be hard for Samsung, other copiers to match

10 years ago

“Though abundant in nature and everyday items like soda cans, aluminum didn’t figure prominently in modern electronics until just a few years ago,” Vlad Savov reports for The Verge. “Then Steve Jobs discovered an appreciation for the metal, the unibody MacBook was born, and a chain reaction was set off that finds us now able to buy precision-milled aluminum hard drives, batteries, and even cameras. How did all this come to be? And is Apple about to repeat the feat with its latest investment in manufacturing, this time focused on sapphire glass?”

“‘Aluminum is now cheaper and easier to implement thanks to Apple itself,’ says noted analyst Ming-Chi Kuo of KGI Securities. His assessment, shared by many others, is that Apple’s demand drove ‘related suppliers of aluminum casing to invest more on capacity and technology.’ They were all competing for the lucrative prize of satisfying the MacBook maker’s need to extrude, machine, anodize, and recycle vast quantities of the metal,” Savov reports. “You don’t need to agree with Steve Jobs that Apple ‘invented a whole new way of building notebooks from a single block of aluminum’ to appreciate that its change in manufacturing fundamentally altered the supply chain for the material.”

MacDailyNews Take: You know what, yes, you do need to agree that Apple invented a whole new way of building notebooks from a single block of aluminum. Because they did. This is simply fact. It’s a good idea to agree with facts lest you be considered a pain-in-the-ass nut job. Fact obliterates opinion.

“While neither Nokia nor HTC would openly acknowledge Apple’s contribution in muscling open the doors to machined-aluminum electronics, the American Aluminum Association is a little more forthcoming,” Savov reports. “Visitors to its aluminum.org homepage are greeted with a ‘Thank you, Steve Jobs’ message, followed by the tagline of ‘the man who made aluminum cool again.'”

“Once the Cupertino company has decided to adopt an expensive — or even heretofore nonexistent — technology or manufacturing method, it spends unflinchingly to find the suppliers and producers who can turn it into a reality,” Savov reports. “This brute force approach has paid off for Apple repeatedly, and also benefited the broader industry. Another example of it can be found in ViewSonic picking up the original iPad’s screens for its line of budget Android tablets after Apple no longer needed them.”

“That may be how Apple’s usually done things, but it’s not what the company is doing with sapphire. After sealing a deal with GT Advanced Technologies in November last year for the manufacture of sapphire crystals at a new plant in Arizona, Apple is now moving into the business of producing rather than merely sourcing its component materials,” Savov reports. “This is a change in strategy, but not an unforeseeable one. As Horace Dediu points out in a 2011 analysis of Apple’s manufacturing expenditure, the Cupertino company has been on a consistent path to owning more of the tools, machinery, and equipment used in the creation of its devices. Owning the entire factory is just the next step in this transition, whose goal appears to be to extend the period of exclusivity for Apple’s hardware innovations. Without outsourcing the work to others, Apple is helping to minimize the potential for any trickle-down benefits for its competitors… it will be much harder for others to copy.”

Much more in the full article – recommended – here.

“Over at The Verge they’re having a look at the economics of materials: more specifically, at how Apple has changed the economics of the use of certain materials by investing substantially in the production processes. On the subject of aluminium for cases of laptops and smartphones they get it largely correct,” Tim Worstall writes for Forbes. “It’s when we move on to Apple’s sapphire supply chain that a couple of errors slip in.

There are a number of practical distinctions between sapphire and aluminum that may also have motivated Apple’s new approach. Whereas the silvery-gray metal makes up 8 percent of the Earth’s crust and has no supply shortages, synthesizing sapphire takes a great deal of time and effort. – Vlad Savov, The Verge

Worstall explains, “Sapphire is in fact aluminium: it’s made from exactly the same (well, OK, a purer form of) aluminium oxide that aluminium metal itself is made of. The costs of doing so are higher, this is true, perhaps 20 to 30 times the $900 worth of electricity we have to use to produce each tonne of aluminium metal. But this is very much the problem that Apple is looking to address in its production deal.”

That may be how Apple’s usually done things, but it’s not what the company is doing with sapphire. After sealing a deal with GT Advanced Technologies GTAT -0.8% in November last year for the manufacture of sapphire crystals at a new plant in Arizona, Apple is now moving into the business of producing rather than merely sourcing its component materials. This is a change in strategy, but not an unforeseeable one. As Horace Dediu points out in a 2011 analysis of Apple’s manufacturing expenditure, the Cupertino company has been on a consistent path to owning more of the tools, machinery, and equipment used in the creation of its devices. Owning the entire factory is just the next step in this transition, whose goal appears to be to extend the period of exclusivity for Apple’s hardware innovations. Without outsourcing the work to others, Apple is helping to minimize the potential for any trickle-down benefits for its competitors. – Vlad Savov, The Verge

Worstall writes, “It would be interesting if that’s what Apple was doing as it would be a change in strategy. The thing is it isn’t what Apple is doing. Apple has partnered with GT, this is true. But GT still owns the factory and all of the equipment. What Apple has done is pre-purchase all of the product that will roll off the lines in that new factory for the next few years. After that GT is entirely at liberty to sell to other users. Indeed, my expectation is that Apple would love them to do so. For here’s the economic problem they’re trying to overcome (and I would note that my office is actually inside a sapphire factory and I’ve run through this with the engineers as being a reasonable description of what’s going on).”

“What GTI is doing is, now that they’ve got that large order from Apple, is making larger pieces of sapphire, thus making it cheaper per kg. And their core technology was already a method of cutting ingots which wasted less of the material,” Worstall writes. “The end result is that Apple gets cheaper sapphire sheets to use in its products. The cost to it of doing so is that it pre-paid for it all. No, it didn’t buy the factory nor invest in it. And Apple will be similarly happy as that factory supplies others in the future: for that will just drive down costs ever further as a result of those greater economies of scale. And that’s what Apple is really doing with their cash pile.”

More in the full article – very highly recommended – here.

MacDailyNews Take: Oh, but whatever will become of the slavish copiers, Samsung et al., who are currently struggling to match Apple’s 64-bit iPhone and 64-bit iPads, Apple’s Touch ID (which actually works, imagine that!) and who are still stuck peddling 32-bit antiques to the clueless ignorati?

If you think synthetic sapphire is going to be bad news for Apple’s slavish copiers, imagine if Apple uses Liquidmetal (and only Apple can use Liquidmetal, in perpetuity, no less)! That’s right Samsung, you can never, ever copy an Apple Liquidmetal product. May the frustration blow your collective head off, perpetual follower Samsung.