That's one of the questions Bernstein's Toni Sacconaghi (who covers Apple) and Alberto Moel (who covers Corning) set out to answer in a two-part report to clients issued Wednesday -- the same, day, coincidentally, that Arizona Gov. Jan Brewer vetoed a controversial anti-gay bill that Apple opposed.
The other question they address is who came out ahead in the deal Apple signed with GT Advanced Technologies (GTAT), which has contracted to provide enough crystal growing capacity to make, Moel estimates, the equivalent of up to 25 million smartphone covers a quarter.
Their reports represent the deepest dive I've seen yet into sapphire, its unique properties (Moel calls it a "wonder material"), its industrial uses, and what promise it might hold for Apple.
The two analysts don't have a definitive answer for that last part, except to demolish the theory that sapphire crystal will replace Corning's (GLW) Gorilla Glass screen on the iPhone anytime soon, except perhaps as a laminate. (Why would Apple, which already owns the high-end smartphone market, replace a $3 screen with a $15 crystal that would probably shatter even more easily?)
Which makes their analysis of the deal even more interesting. Basically, Apple has paid $113 million for an empty factory and loaned GT $578 million to purchase, install and operate the world's largest sapphire crystal-growing plant. GT gets a huge bump in its income and a lot of press and prestige, but it's assuming most of the risk. Apple is paying for the capacity, but it hasn't promised to buy all -- or even any -- of the sapphire GT makes.
From Apple's point of view, it's a pretty sweet deal. As Moel writes:
For Apple, this transaction is an opportunity to lock up the supply chain in a technology that Apple has decided is important as a differentiator of its product portfolio or product performance. How exactly remains to be seen, but the relatively "small" amount of money involved (from Apple's perspective, with its $142 billion net cash hoard), and the fact that Apple carries effectively zero risk in the transaction, makes it worth Apple's attention. Effectively Apple has entered into a supply lock-up and technology hedge for zero or very little relative cost. If it does not work, either because the technology does not deliver, or consumers do not care for it enough to pay either with better margins or higher unit shipments, Apple is out at most a small amount from its pocket.
In separate piece posted same day on Seeking Alpha, Deloitte CRG's Matt Lew looks at the deal from a higher altitude:
Supplier arrangements like the GTAT deal are in Apple's DNA -- it's just the way they do things. You can look back to Apple's stronghold on the NAND flash memory market, which required multi-billion dollar upfront payments -- a move that proved to be genius as personal electronics began the tectonic shift from hard-drives to flash storage. You can also look at its prepaid deals with freight companies to ensure capacity over the holiday season, which can influence worldwide freight costs. More recently, you can look to Asian suppliers / manufacturers like Hon Hai (Foxconn), Catcher, and others that Apple has locked into exclusivity deals that kept many out for a long time. Apple's MacBook Air had a unibody aluminum chassis that was, and still is, the gold standard in the new 'ultra-portable' PC market. Many wondered why Windows PC OEMs could not replicate it and the simple answer is, they could not even if they wanted to. Apple had exclusivity agreements with manufacturers (like Catcher) to produce the extremely complex aluminum unibody designs.
"And that," Lew concludes, "is the Apple way."
Last week, Bernstein's Toni Sacconaghi put Apple's incremental sales at 15 million.
FORTUNE -- This week's burning question among Apple (AAPL) analysts is this:
If and when China Mobile (CHL) begins selling iPhones to its 759 million subscribers, how many will it sell in the first year?
Everybody's got numbers, but the two most persuasive estimates I've seen came from Bernstein's Toni Sacconaghi and Morgan Stanley's Katy Huberty, who each took the time to show his or MOREPhilip Elmer-DeWitt - Dec 16, 2013 10:22 AM ET
He cut his buyback demand from $150 billion to $50 billion and gave Apple a year to do it.
FORTUNE -- From the headlines, you would think that Carl Icahn, America's most famous corporate raider, had donned a headdress and gone into his war dance:
Icahn beats Apple buyback drum (again) with new proposal (CNET)
Carl Icahn Rallies Apple Shareholders To Demand Stock Buyback (Cult of Mac)
Carl Icahn ups ante in crusade for Apple buyback (Associated Press)
Not yet, says Toni Sacconaghi, but the end may be in sight.
FORTUNE -- Bernstein's Toni Sacconaghi produced the chart above for a report out Monday that raises what is, for Apple (AAPL), an existential question:
Are There Enough Wealthy People in the World to Sustain iPhone Unit Growth?
Note that the black bars in the chart that represent first-time buyers are shrinking.
Sacconaghi's conclusion: Barring a signed contract with China Mobile (CHL) or MOREPhilip Elmer-DeWitt - Oct 7, 2013 11:22 AM ET
Apple suffers as Samsung cuts third quarter Galaxy S4 production by an estimated 25%.
FORTUNE -- You would think that bad news for Samsung's smartphones would be good news for Apple (AAPL). But that's not how Wall Street sees it, according to Bernstein's Toni Sacconaghi.
In an CNBC interview Monday, Sacconaghi listed among the reasons for Apple recent weakness (down 6.8% in a week) the Street's concerns about "Samsung's high end product perhaps MOREPhilip Elmer-DeWitt - Jun 25, 2013 7:50 AM ET
Unless, says Bernstein's Sacconaghi, Apple introduces new iPhones this summer.
FORTUNE -- The chart at right represents the worst case scenario for Apple's (AAPL) share of the global smartphone market, as forecast Monday by Sanford Bernstein's Toni Sacconaghi.
Using Apple's own numbers for fiscal Q2, Sacconaghi calculates that iPhone sales grew 7% year over year in a sell-in basis (12% in a sell-through basis) while the overall smartphone market grew by about 36%. The MOREPhilip Elmer-DeWitt - Apr 29, 2013 4:51 PM ET
Bernstein's Apple analyst says investors are expecting the equivalent of a 4.5% yield.
FORTUNE -- According to Bernstein Research's Toni Sacconaghi, Apple's (AAPL) top brass has been holding "widespread discussions" with key investors to get input on its plans to return more of its $137.1 billion cash hoard to shareholders.
Sacconaghi has been debriefing those investors and now thinks he has a pretty good idea of how Apple's cash management plans have MOREPhilip Elmer-DeWitt - Apr 15, 2013 11:20 AM ET
Topeka's Brian White is sticking with $888. Bernstein's Toni Sacconaghi is still at $725.
FORTUNE -- After a string of analysts dropping their price targets in lockstep with Apple's (AAPL) falling shares, it's refreshing to hear from a couple of guys who haven't lowered their targets. Or at least not lately.
Bernstein's Toni Sacconaghi ($725, down from $800 last December) weighed in Tuesday with his views on the much-rumored Apple iWatch. He's MOREPhilip Elmer-DeWitt - Mar 19, 2013 12:53 PM ET
Morgan Stanley's Katy Huberty thinks Apple should borrow to pay its shareholders
FORTUNE -- While Greenlight Capital's David Einhorn was lobbying shareholders Thursday to support his perpetual preferred stock idea (see Would you buy an iPref from this man?), Morgan Stanley's Katy Huberty has been meeting with the Apple (AAPL) executive who rejected Einhorn's proposal last September: Chief financial officer Peter Oppenheimer.
In a note to clients Friday, Huberty reports that she MOREPhilip Elmer-DeWitt - Feb 22, 2013 6:47 AM ET
Over the past 8 quarters, it beat its EPS estimate by 42%, revenue by 18%
FORTUNE -- When it reports its results for the March quarter this afternoon, Apple (AAPL) will also release forward-looking statements about the June quarter in the form of three numbers: its guidance for revenue, earnings and gross margin.
The numbers Apple issues tend to be laughably conservative; the company always prefers to under- rather than over-promise. Nonetheless its MOREPhilip Elmer-DeWitt - Apr 24, 2012 8:15 AM ET
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