FORTUNE — What’s Apple (AAPL) up to with that sapphire factory it’s building in Mesa, AZ?
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.”
