In Part 2 in our Barriers to Entry posts (Part 1 is here), we’re focusing on a recent report from the industry experts at Yole Developpement. Yole analysts have been keeping a keen eye on worldwide capacity for sapphire crystal growth. According to Yole’s Eric Virey, more than 50 companies have announced their intention to enter the sapphire growth market, with more than 40 located in China. While the capacity plans announced by all of the new companies collectively would add up to triple world demand, Yole believes it is “a situation unlikely to actually materialize.”
Why? These new market players have little or no prior experience in sapphire crystal growth and wafer manufacturing. And, while there are some “turn-key” solutions to lower the barrier to entry, “reaching and sustaining high quality and high yields in sapphire crystal growth still requires significant expertise.” Indeed the learning curve is steep to reach yield levels on par with established Tier 1 manufacturers.
Yole’s report also said that margins in 2010 were favorable to new entrants allowing them to achieve comfortable margins “despite low yields and sub-par technology.” However, with 2 inch pricing at historic lows, Yole calculates that they will lose money at the current market prices while “established vendors with higher yields, large volumes, and a more favorable product mix, including large-diameter wafers, can achieve production cost <$5 that will allow them to maintain positive margins and weather the storm.”
For Further Reading: Yole Developpement web site