Apple Banks on Desire for Rugged iPhone 6 Screen

Any previous estimates of iPhone 6 sales need to be tossed out.

Evidence that Apple Inc.'s (Nasdaq: AAPL) next-generation smartphone will include a virtually unbreakable sapphire screen will push sales far beyond earlier expectations, which means that Apple stock at below $100 is significantly undervalued.

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The Cupertino, Calif.-based tech giant used sapphire covers for the camera and fingerprint-reading home button in the iPhone 5s, but a sapphire screen is a major upgrade. Not only is it almost perfectly transparent with no distortions or discolorations of any kind, it's also next-to-impossible to scratch or crack.

That's the sort of must-have feature that by itself could induce huge demand. How many people do you know that have had their smartphones' screens scratched by the keys in their pocket, or cracked after an accidental drop?

But when you combine this nearly indestructible screen with the other upgrades we know about (such as bigger screen sizes and new health and fitness monitoring capabilities), it's obvious the iPhone 6 will exceed the sales of any previous model by a large margin.

So how do we know about this remarkable sapphire screen?

Rumors like this often come from sketchy sources in AAPL's Asian supply chain, but in this case we actually have video evidence, one from blogger Marques Brownlee and another made in China.

Both were able to get a sample of the iPhone 6 screen, and both spared no effort in trying to inflict damage. The screen withstood the scratching of keys, severe bending, being struck with a hammer, exposure to flame, and repeated jabbing with a large, sharp knife. In every case, the iPhone 6 screen emerged without a scratch.

Only the folks who made the Chinese video were able to destroy the sapphire screen - by running over it with a car.

With the iPhone 6 virtually guaranteed to be a runaway hit, let's look at how it will affect AAPL stock.

What the iPhone 6 and Its Sapphire Screen Will Do for Apple Stock

AAPL knows it has a winner on its hands. Taiwan's Business Weekly did an extensive analysis of Apple's iPhone supply chain and this week estimated that Apple's initial iPhone 6 order will exceed 68 million units.

That's a stunning number when you consider that Apple sold a total of 51 million iPhones - including all models - in the December quarter (the iPhone 5s and iPhone 5c debuted Sept. 11).

If Apple follows precedent, the iPhone 6 will debut near the end of the September quarter, setting up what should turn out to be a record December quarter.

And while AAPL has many profitable businesses, for now the iPhone is the primary revenue engine, accounting for about half of the company's revenue and more than half of its profits.

If the iPhone 6 raises total iPhone sales by 25% in the year following its launch, it will add about $26 billion in revenue, which is big enough to affect even Apple's top line, at $176 billion over the past 12 months.

Previous estimates had put the iPhone 6's impact on the AAPL stock price at about 10%; the sapphire screen should add several more percentage points. Currently trading at about $95, Apple stock should easily blow past its all-time high ($101.74) this summer on its way to somewhere around $110 by the end of the year.

Beyond its fruitful impact on Apple stock, the sapphire screen will affect two other companies - one positively, the other negatively.

The company that gets dinged is Corning Inc. (NYSE: GLW), which makes the Gorilla Glass that Apple has used in the iPhone, iPad, and iPod Touch until now. As Apple adopts the sapphire screens throughout its mobile product lines, Corning will lose a significant chunk of business.

Not surprisingly, Corning has been openly critical of sapphire screens, saying they cost too much (although it can't criticize the thickness or weight - the sapphire displays are thinner and lighter than Gorilla Glass).

But Apple is very good at getting components as cheaply as possible, which brings us to the winning company in this transition: GT Advanced Technologies Inc. (Nasdaq:
GTAT).

Apple made a deal last year with GT Advanced to open and operate a manufacturing facility for sapphire components in Mesa, Ariz. (which happened in February). The factory at present is capable of producing about 200 million sapphire displays a year - just about what Apple will need.

But if Apple starts using the sapphire screens in its other devices, GT Advanced will need to expand its operations. It represents a lot of new business for GTAT, although an exclusivity clause will prevent the company from selling to Apple rivals like Samsung Electronics Ltd. (OTCMKTS: SSNLF).

It also means Apple will be able to use those sapphire screens as a unique selling point for years to come - a smart move that's also bound to pay off.

What's your take on the impact of the iPhone 6 on Apple stock? Do you agree it will have a major impact? Speak your mind on Twitter @moneymorning or Facebook.

UP NEXT: There's yet another catalyst for Apple stock that is just now gaining traction, but unlike the iPhone this one has received very little attention. It's a technology that could change the very way people shop and interact with businesses. It's called iBeacon...

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