Apple Inc. (NASDAQ:AAPL) has entered into an agreement with GT Advanced Technologies Inc (NASDAQ:GTAT) for the supply of sapphire material. GT Advanced Technologies is a producer of advanced materials and crystal growth equipment for electronic products all over the world.
Deal ensures a positive cash flow for GT
According to GT’s statement, the company has signed a deal with Apple Inc. (NASDAQ:AAPL) to provide the iPhone maker with sapphire material. As a result of the partnership, the company is looking forward to hiring 700 workers who will operate from Apple’s facility in Arizona where it will run ASF furnaces to produce sapphire. For supplying the material needed by Apple, GT will receive about $578 million, which makes up 6% of Apple’s total capital expenditure for fiscal 2014, says a report from UBS by analysts Steven Milunovich and Peter Christiansen.
GT will be bound by certain terms and conditions, and the company is looking forward to the deal, which means a positive cash flow and positive earnings in 2014. The end product is expected to be delivered in the next 12-18 months.
Apple may use sapphire for many gadgets
Analysts believe that there’s a good chance that Apple is preparing a sapphire-based screen for its next iPhone or iPads instead of Corning’s gorilla glass. Gorilla glass is beneficial in terms of cost, manufacturing, weight, and strength, but sapphire is popular for being scratch resistant.
Sapphire is a material that can bear extreme damage, so Apple Inc. (NASDAQ:AAPL) can use it as a screen on which users can write – not only through a stylus but also through “most typical writing instruments.” If Apple uses sapphire, then analysts believe “handwriting and drawing functionality” will be a new and unique feature for the next iPad. Also, there’s a strong possibility that Apple Inc. (NASDAQ:AAPL) uses sapphire for its rumored iWatch as the material is commonly used for watch casing.
Analysts at UBS are considering all the possibilities in which Apple can use sapphire, however, “indicated capacity” indicates that it’s most helpful in devices with larger surface areas.
Potential risks to Apple’s valuation
UBS analysts have a Neutral rating on the stock with a price target of $540.
According to the analysts, downside risk to their Apple Inc. (NASDAQ:AAPL) stock valuation includes interruption in the launch of new products, lack of innovation after Steve Jobs, a sluggish economy and other macro factors that can slow down the demand.