The company also announced that it has entered into a multi-year supply agreement with Apple Inc. to provide sapphire material. GT will own and operate ASF® furnaces and related equipment to produce the material at an Apple facility in Arizona where GT expects to employ over 700 people. Apple will provide GT with a prepayment of approximately $578 million. GT will reimburse Apple for the prepayment over five years, starting in 2015.
Sapphire substrate is important for use in the Apple iPhone fingerprint recognition home button (photo courtesy: Apple Insider)
Although the agreement does not guarantee volumes, it does require GT to maintain a minimum level of capacity. GT will be subject to certain exclusivity terms during the duration of the agreement. GT expects this arrangement to be cash positive and accretive to earnings starting in 2014. Gross margins from this new materials business are expected to be substantially lower than GT's historical equipment margins. However, the company believes the strategic nature of this agreement and the benefits associated with building a recurring revenue stream are important to its continued diversification.
Continuing to Drive Sapphire Manufacturing Cost Improvements
GT has accelerated the development of its next generation, large capacity ASF furnaces to deliver low cost, high volume manufacturing of sapphire material. These R&D efforts will support its non-LED initiative with its new customer and are expected to enable the expansion of GT's LED, industrial and specialty sapphire businesses by positioning GT and its equipment customers as the industry's lowest cost sapphire producers.
Management Commentary
"We are very excited about this agreement with Apple as it represents a significant milestone in GT's long term diversification strategy," said Tom Gutierrez, GT's president and chief executive officer.
"We believe that it is in the long-term best interests of our company, employees and shareholders to build a robust sapphire materials business with recurring revenues," Gutierrez continued. "By leveraging the new materials operation and our enhanced R&D efforts, we will be well positioned to drive the growth of other sapphire opportunities, including the expansion of our LED and industrial sapphire businesses in partnership with our ASF customers.
"We remain committed to our other established and emerging capital equipment businesses, including our HVPE solution for downstream LED manufacturing, Hyperion thin substrate solutions, silicon carbide (SiC) growth platform and technologies to drive the next-generation of low cost solar. We are encouraged by the improving market conditions in each of these sectors and the technical progress we continue to make across these platforms. As a result, we remain confident in our ability to grow these businesses over the next several years," Gutierrez concluded.
