Sapphire Production Underway in Arizona, Small Quantities Shipped to Apple Partners

Apple's sapphire crystal partner GT Advanced has begun sapphire production and has even shipped small quantities of the material to an Apple partner in China responsible for making sapphire covers, according to a report from analysts at UBS Research.

Sapphire production is said to have begun last month, in March, but it appears the facility is not yet running at full capacity. GT Advanced reportedly shipped 2,200kg of sapphire, the amount produced by approximately 100 furnaces.

The company is said to be on schedule to install another 400 to 500 furnaces in the first quarter of 2014 and an additional 900 to 1,000 in the second quarter, significantly ramping up production towards the end of the year ahead of the release of both the iPhone 6 and the iWatch.

We estimate GT's shipment to China was only about $1M worth of sapphire last month. We believe this Apple partner needs to be receiving sapphire totalling about $50M+ per month to confirm that the GT Arizona fab is running at close to full utilization.

GT Advanced's sapphire production plant, which is financed by Apple, uses large capacity furnaces that emphasize lower cost, higher volume sapphire manufacturing. While Apple currently sources sapphire from a number of other suppliers for use in iPhone elements like the protective cover over the cameras and the home button of the iPhone 5s, GT Advanced's operation will produce much higher quantities of the material, leading many to believe Apple has big plans for sapphire.

Thus far, rumors have suggested that Apple may be planning to use sapphire crystal displays in its upcoming iPhone 6, due to the superior durability and scratch resistance of the material. A recent report from KGI Securities analyst Ming-Chi Kuo suggested supplies could be limited, however, resulting in only some models of the iPhone 6 produced using sapphire.

Sapphire may be a key component of Apple's upcoming smart watch, as it could prevent the device from becoming scratched even with heavy use. Many high end luxury watches also use sapphire crystal displays.

Reports have indicated that GT Advanced has purchased enough sapphire furnace and chamber systems to produce between 100 and 200 million sapphire displays, enough for its entire line of devices should it continue to meet its production timeline.