Sapphire Isn't a Threat to Corning Anymore

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Nov 26, 2014

Before going into bankruptcy, GT Advanced Technologies (GTAT, Financial) was considered as a primary threat for Corning (GLW, Financial). There were rumors that GT might land design wins in the iPhone and the Apple (AAPL, Financial) Watch. However, the bankruptcy seems to have tilted the balance in Corning's favor. But, is this the case? Investors should not rule out Rubicon Technology (RBCN, Financial).

According to Rubicon's website, "Rubicon Technology, Inc., the global leader in large-diameter sapphire substrates, has leveraged its unique expertise to create a complete line of Patterned Sapphire Substrates-PSS-up to 8" in diameter. We offer fully customizable sub-micron patterning capability with tight dimensional tolerances, within ± 0.1 μm."

As sapphire is more durable, slimmer and scratch resistant, it is also costlier to produce, but in mass production, its cost can be brought down if a big-name manufacturer would be willing to make the switch. Investors were expecting Apple to solve this problem, but even Apple didn't switch to sapphire, thereby putting sapphire's future in doubt. Even though sapphire has been used in smartphones for certain functions such as home buttons and as the camera lens, there is no one going mainstream with it. As a result, Corning doesn't seem to be in any sort of danger from Rubicon, or any other sapphire manufacturer.

A closer look at sapphire vs. Gorilla Glass

In addition, Sapphire was subjected to a drop test in order to be checked for its superiority over Gorilla Glass. The results were in favor of sapphire, as it was 25% stronger than Gorilla Glass and more scratch resistant. On the other hand, sapphire also showed a tendency to shatter when dropped from just under one meter, whereas Gorilla Glass requires three times the force to shatter. Hence, being thin and brittle was a disadvantage to sapphire. Therefore, it was found that sapphire has no major advantages over Gorilla Glass, as the scratch resistance was offset by strength.

Moreover, while Gorilla Glass costs just $3 per display, the cost of sapphire display rises up to $20 initially and could possibly fall to $12 per display depending on increased competition and manufacturing scale. All in all, sapphire is a lot more expensive than Gorilla Glass when it comes to "use in phones." Apart from this, Gorilla Glass has its own advantages over sapphire. It is a cover that is about half the weight, needs 99 percent less energy to be built, provides brighter displays and costs less than a tenth of sapphire. The figures here are also going to do a lot of work as Gorilla Glass has been featured in over 2.7 billion devices to date.

Given that GT Advanced Technologies couldn't land a spot in Apple despite having massive funds to facilitate R&D, it looks unlikely any other sapphire-making company will threaten Corning's Gorilla Glass any time soon, and it looks like Corning is confident about the prospects of Gorillas Glass as the company launched the next version of Gorilla Glass, called Gorillas Glass 4, this week, which possessed enhanced drop protection. Corning said that it dropped Gorilla Glass 4 and other competitive glasses from a height of 1 meter. Gorilla Glass 4 survived sharp drop impacts 80 percent of the time and showed two times improvement over Gorilla Glass 3 and other hardened, aluminosilicate glasses.

With Corning working on upgrading its Gorilla Glass screen, it looks unlikely that any sapphire screen maker will threaten Corning's dominance in the smartphone screen making space any time soon.

Some more positives and the takeaway

Other than this, Corning has done very well in its single biggest segment, viz. Display Technologies, which brought in around $1.1 billion in revenue last quarter, up 62% from $670 million year over year. This business seems to be profitable in the long term. Besides this, the specialty materials segment is also performing well, with sales worth $298 million in the quarter, and a 10% rise in sales is expected in the next quarter. The optical fiber/cable division, which accounts for 10% of Corning's business has also been growing at north of 20%.

All in all, Corning doesn't face too much of a threat from sapphire display. In addition, its other segments are also moving forward at a good pace. Until and unless sapphire goes mainstream, it will cost more, thereby eating into the margin of the phone companies. Hence, Corning investors can sleep easy as the stock can move higher going forward.