Corning, Apple, and Other Musings

Corning, which I posted on a few weeks ago, makes Gorilla Glass for products like the iPhone.  Apple recently announced a major manufacturing contract with GT Advanced, which makes sapphire for products like the iPhone. So the question is, could sapphire -- which is harder than Gorilla Glass -- ultimately be produced in volume, and inexpensively enough, to move downmarket and damage Corning's Gorilla Glass business?  

And the short answer to that question is probably no, at least according to disruption theory, because incumbents typically adopt sustaining technologies that improve on existing offerings.  See Concepts page and discussion of Clayton Christensen.  If sapphire is functionally superior to Gorilla Glass, and can ultimately be manufactured in volume at a reduced/attractive cost, then Corning will -- or at least should -- adopt the processes needed to manufacture it.  

If Corning fails to adopt sapphire technology as it becomes more cost effective/feasible, it's probably making a strategic mistake -- incumbents that fail to swiftly adopt/co-opt sustaining improvements lose market share and relevance over time.  Intel's failure to adopt ARM technologies for mobile chips is a classic example of this.  ARM-based chips lack some of the computing power of Intel's x86 chip architecture, but they generally facilitate better battery life, which is one of the most important performance characteristics for mobile devices.  As a result, ARM chips are a sustaining improvement for mobile devices.  Intel has been reluctant to license ARM chip architecture, losing market share to companies like Qualcomm as a result.  Intel's approach may slowly be changing:  the company recently announced that it would make ARM-based chips for Altera, functioning purely as a chip foundry.  Altera makes processors for the medical, military, and communications industries.

As a more expensive, functionally superior product (at least in terms of breakability), sapphire also doesn't meet the criteria for a low end or new market disruptive product.  When introduced, disruptive products are functionally inferior to existing offerings -- they then slowly move upmarket, taking more and more market share from existing, functionally superior offerings.

The author does not own stock shares of Corning or Intel, but does own shares of Apple.