This is what makes it difficult to compete with Apple. These types of prepayments allow Apple to negotiate favorable deals for components that the manufacturer will happily sell at razor-thin margins. In order for the competition to produce an equivalent product on a hardware level, they would have to be willing to accept much lower margins than what they have. And there's no guarantee that they'll sell as well, making the investment in those materials risky.
This only matters as long as Apple continues to make products consumers want most. If (as many speculate) this changes once the product pipeline that Jobs oversaw before his death is exhausted, the Cook supply chain dominance won't really matter; less people will buy Apple products and Apple's power to make these sort of plays diminishes. If Apple continues to make products consumers want most, then who cares about supply chain coups? Everyone else has a bigger problem on their hands.
I wish people would repost the above more. Knowledge of this is one reason I tend to grab second hand stuff on the way to the skip rather than fish out for new kit every year.
Like the article says, the $578M is just the prepayment. The total amount may be much greater. The facility itself was acquired from First Solar, who sold it at a loss, and it seems like Apple will be fronting the capital for the factory's construction. The deal also requires a minimum amount of capacity for Apple and also exclusivity for some unknown amount of time (perhaps the same 5 years), so it's unlikely that they'll be supplying anyone besides Apple. And this is just for one component, Apple likely makes these deals with all their suppliers.
For comparison's sake, Apple's ad budget in 2012 was $1 billion [0], so they just purchased almost 60% of their own advertisement budget in just sapphire.
The first phrase of the article is "Apple is building a manufacturing plant in Arizona". Space to build manufacturing plants is not scarce. They are actually even re-purposing one.
I guess GT Advanced Technologies might have some scarce expertise.
If I understand their business model, GTAT wanted to be in the furnace and process business and sell those to other companies that would do the manufacturing. It looks like no one wanted to be one of those companies.
There is no "scarce" here. GTAT wanted to make and sell a lot of this capacity, they just couldn't get a buyer to risk their capital.
From that standpoint it makes perfect sense for Apple to pony up. They want the end product. There is no need for a third company to take risk, provide capital, and make extra profit. Apple provides the capital, takes the risk.
The "scarce" is their ASF furnaces that enable production at scale and low cost, which is currently being repurposed for their own contract with Apple.
When I heard the iPhone 5 was going to use a sapphire lens cover I decided to lookup more on the technology and found that GTAT had what looked like the best know-how in its manufacture.
I had also previously seen a story on some tech being created by a company called Twin Creeks that looked pretty cool, and was surprised to see that GTAT had acquired it's assets. That made me think the company was being aggressive in it's pursuit of acquiring/developing cutting-edge manufacturing processes.
Plus, I think solar power is a major part of the future and things will be pretty bleak if it can't deliver long-term, but I like to be an optimist, so why not put my money there?
Not sure why the total advertising budget for companies with radically different product sets should meaningfully compare in any way with the cost of preordering a single material in bulk.
I used ad budget as a proxy for a firm's discretionary cash flow. If you wanted, you could instead look up other financial figures and choose another proxy. For instance, Samsung had 2012:
Revenue: $268 B (17% of S. Korea's GDP)
Net Income: $26 B
Total Assets: $470 B
My point is that the companies Apple is competing against don't make these moves because they don't have the financial resources, it's because moves like these don't fit into their overall strategic plans.
Microsoft has $77 billion in cash reserves[0]. I assume this is pre-Nokia purchase but that doesn't change the fact that they could have done the same thing if they wanted to - they just didn't. It wouldn't make sense either as they don't manufacture to my knowledge.
And yet they were at one time the low-volume underdog. People scoffed at them when they first started making iPods and again later with iPhones (even though there were fewer doubters by the time the iPhone came to be, there were still some). They clawed their way up to where they are now over the last 15 years, pretty much "back from the dead". During much of that time, their products were higher priced than their competitors due to the same supply & volume constraints you are describing, only against them instead of in their favor. Now it seems the shoe is finally on the other foot.
This is a classic Apple maneuver, too. During the heyday of the iPod Apple regularly cornered the market on NAND flash, and they also paid Corning to bootstrap production of Gorilla Glass for the first iPhone.
It's not the money that gives Apple the edge here, it's the "innovation" (let's leave the debate about whether Apple innovates or just improves/repackes aside for now) that allows them to pre-empt the need for those components.
Apple is still enough ahead of the competition in the product development department that they start making these deals long before anyone else.
Plus of course the manufacturers trust Apple to actually take delivery of all and more based on the success of the past.
Being able to put up the money for those kind of prepayments is about the only area in which competitors can match Apple.
I believe they are holding off antitrust lawsuits due to Android having higher global market share. I find it odd because Apple has higher share in the US and a near monopoly on tablets.
Apple has a higher share in the US (40%) compared to other manufacturers, but Android is dominant (51%) vs. iOS.
Regarding tablets, I'm surprised more Android tablets didn't target the Asus Transformer/Chromebook form factor - seems like an area where Apple wouldn't want to tread (to not cannibalize their Macbook sales).
What is cool about this is how much of technology required for all little tiny parts of modern devices. Who knew a camera lens is made up of Sapphire? I wonder how many elements from periodic tables would be checked off when making an iPhone. Just thinking about this, there were probably 100s of innovations just to mine and purify and machine sapphire in past 100s of years so that in 2000s we can finally produce acceptable quality tiny camera lens. Same thing goes for Gorilla glass, motion sensors and so on. I would probably bet that if we needed to make a document that describes every technology required to make an iPhone starting from how to make a fire so that a caveman can follow it by the line and produce an iPhone, it would probably a 100 million pages.
«I, Pencil, simple though I appear to be, merit your wonder and awe, a claim I shall attempt to prove. In fact, if you can understand me—no, that's too much to ask of anyone—if you can become aware of the miraculousness which I symbolize, you can help save the freedom mankind is so unhappily losing. I have a profound lesson to teach. And I can teach this lesson better than can an automobile or an airplane or a mechanical dishwasher because—well, because I am seemingly so simple.
Simple? Yet, not a single person on the face of this earth knows how to make me. This sounds fantastic, doesn't it? Especially when it is realized that there are about one and one-half billion of my kind produced in the U.S.A. each year.»
Except that essay doesn't tell you how to actually make a pencil... it tells you how to make a market where the components of a pencil could be bought.
I think it would be more interesting (well, unless you're an economist) to describe the composition of the various parts of the pencil, how they are formed, and ultimately how the pencil is physically manufactured.
it tells you how to make a market where the components of a pencil could be bought
As I recall, the point of the essay is that you simply can't make a "market" that would produce a pencil at all. No one can. It happens organically, or not at all.
The strength of markets is that they are self-organizing to a large degree (given the right conditions, e.g. political stability and preservation of capital), and that the sum is greater that the parts—in the essay, the 'sum' being the pencil, which no single organization (or government) can produce on it's own.
Better than the pencil thing, imho, since it actually focuses on the can of coke itself, rather than the coffee cup the bauxite miners might be drinking.
> I wonder how many elements from periodic tables would be checked off when making an iPhone.
I'm not sure why this should be a particularly large number. Obvious candidates:
Au - circuitry
C, H - plastic
Si - glass, chips
Al, O - corundum
Whatever powers the battery.
Whatever else goes into the chips and circuitry.
> there were probably 100s of innovations just to mine and purify and machine sapphire in past 100s of years so that in 2000s we can finally produce acceptable quality tiny camera lens
"Purifying" sapphire doesn't make much sense. You'd want to melt it, get the iron (or whatever colorant) out, and reform it. It's easier to just start with pure aluminum oxide, which is what they're doing.
As far as I'm aware (and I'd love to be corrected, since gems are a personal interest), the general method of machining gemstones is to abrade them against a surface coated in invisibly small diamonds. How many innovations you want to count in the process is, as always, somewhat flexible; but it's fairly cool technology.
You left out a lot of the phone's components. The screen, the speakers / mic, other electrical components. Most components use alloys, not pure elements.
Not much Pb in modern solders (in fact in the EU you can't add lead to any solder, I think you can have trace amounts if they are "naturally" there).
Modern solder is pretty crappy compared to the stuff I used to work with in the 80's and 90's, it's much trickier to work with, whiskers are more of a problem and I've found (the few times I've used it) that it seems to require more heat.
I think this is very similar to the creator of liquid soap. He knew that no patent could keep this out of his competitors' hands so he bought out essentially every pump liquid dispenser bottle maker.
Looking ahead to see where the need is going to be (not where it is) is an old trick which has withstood the test of time.
"I skate to where the puck is going to be, not where it has been."
Wayne Gretzky
This seems a little more like investing heavily in a company that manufactures pump-dispense bottles. It's hard to see how it could reduce availability.
By investing heavily in the company they lock in an exclusivity contract. They essentially buy all the production capacity of the only significant producer.
In increases global availability, but all that availability is going to them, so everybody else sees reduced availability.
So far as I know, sapphire is also used as a substrate for growing some kinds of semiconductors. Here, the optical clarity isn't as important as the chemical purity, but clarity and purity go hand in hand for sapphire.
This was the obvious next step for touch-based devices. Sapphire production seems to have gotten really affordable recently, and Gorilla Glass never truly delivered shatter protection, mostly scratch protection.
The Ubuntu Edge was going to be the (possibly?) first phone to offer a sapphire, so it's good to see others pick up the idea as well.
Ubuntu Edge was vaporware, and it was never going to be the first phone to anything.
The gulf between "oh yeah, it's going to have a sapphire screen and the best processor ever and photon torpedoes" and actually doing the necessary engineering before ramping up to hundreds of millions of dollars in production is enormous. Companies that ship real products aren't just now "picking up the ideas as well" -- any technology that you see getting significant investment has clearly already been in development for years.
Vertu has offered sapphire screens for a while now.
No reason to be skeptical. Sapphire is commonly used as a high-end alternative for bulletproof glass in armored vehicles. While it is a lot more expensive than bulletproof glass it is also much more resistant to weapons fire, which suggests its durability.
Anecdotally, I also heard today that synthetic sapphire/ruby gems have become difficult for jewelers to source. Maybe someone (Apple?) is already soaking up higher purity raw materials for sapphire production.
It's always difficult, especially for smaller jewelers in the US. We were lucky for several years with sapphire production, allowing us to have sapphire crystals and display backs in watches for very low prices. Pivots have started to move up in price, enough that it's almost worthwhile to do your own bushing (which is fun anyway).
Now you're seeing "mineral glass" back on the upswing in lower priced watches.
Leica started using sapphire for the cover on its displays on the M9p and M8.2 cameras a few years ago, so I'm sure that general industrial consumption has increased among manufacturers producing long-lived products with LCD displays in dusty/sandy/etc. environments.
I thought sapphire was much more brittle than glass, so more prone to shattering. Does someone here know if that's true? Would it be a problem for iPhone/iPad sized pieces?
not much more, and more brittle than gorilla glass which isn't regular 'ole glass IMO. Way way more scratch resistant though, so again IMO, totally worth the tradeoff if price isn't a factor.
For larger displays being shatterproof seems like the more important problem to me. Scratches are already hardly a problem with glass (I get the impression that tiny sharp rocks are pretty much the only thing that can cause problems in the environment those displays are usually in, so to avoid most scratches one has only to avoid laying the display face-first on some dirty/hard surface and sliding it around) and even then a few scratches are not as much a problem as a shattered screen. Shattering is much more fatal to the device and it often only takes one or two drops and the glass shatters.
Being absolutely scratch resistant is a desirable property for a camera lens (which is also much, much smaller and thus much less likely to shatter). It doesn’t seem like such a desirable property and good tradeoff for screens, at least not as long it isn’t as shatterproof as the best glass.
In many ways I tend to think that scratches are a solved problem on mobile devices. Current glass is good enough. Shattering is not. (I’m not gentle to my devices but my 18 month old iPad has practically no scratches. Some are faintly visible if you look at it from certain weird angles. However, the glass of my previous iPad did shatter from a 1 meter or so fall of the edge of the device on tiles. Also, I see people using phones with shattered screens all the time. It seems to be a quite common occurrence.)
Yeah, improving scratch-resistance further would be awesome, but only if there is no trade-off with being shatterproof.
If scratch resistance could be greater it would be very useful. My screen on my older phone has some deep scratches from keys in my pocket - something I now avoid - and hard labour. Smashing concrete, heavy lifting etc when you have a phone in your pocket is brutal on phones. Its a terrible environment for a phone, but I try to get stuff done even when on call. I have checked the screen on a builder I know too, and he has scratches too.
What phone is that? Maybe it has a plastic screen, those get scratched easily.
In my experience metal is typically much too soft to cause any damage to the glass. If anything can cause damage it’s sand and the like (but it has to really press up against the screen). So, yeah, in an environment with a lot of that stuff glass screens will get scratched. However, it’s not like that’s a common environment for phones to be in.
Is it practical to make eyewear (glasses) lenses from sapphire?
I'm brutal on my glasses. I'd happily pay for tougher lenses. Though I did see mention that the failure mode for sapphire is lots of shards flying. So maybe I'll wait.
> Is it practical to make eyewear (glasses) lenses from sapphire?
They would be way heavier than good polyc lenses, yet more expensive than basic (heavy) glass. I doubt there's much of a market, but might have more luck/info asking manufacturers directly (essilor, leitz, nikon, zeiss, ...)
They're going to use it to build city-destroying lasers, and hold world capitals for ransom. Wielding such destructive power from its new "spaceship" campus, Apple will make the entire Earth into a walled garden.
They're going to build consumer electronics with it, of course. What is possibly worrying about that?
