GT Advanced Technologies
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Apple planning to repurpose GTAT plant in Mesa, Arizona
Apple and GTAT's sapphire partnership came to abrupt and somewhat dramatic halt when GTAT filed for bankruptcy shortly after the iPhone 6 unveiling. As a direct result, upwards of 700 employees who worked at GTAT's Mesa, Arizona plant lost their jobs. Now comes word via Bloomberg that Apple has plans to repurpose the plant (which they paid for) and will work closely with elected officials to remain an integral part of the local economy. "They've indicated their commitment to us: They want to repurpose that building and use it again," Mesa City Manager Christopher Brady said in a recent interview. Apple has said it's focused "on preserving jobs in Arizona" and promised to "work with state and local officials as we consider our next steps." ... "Apple could've invested in a facility literally anywhere in the world," said Mesa Mayor John Giles, who is planning to visit Apple's headquarters in Cupertino, California, to show the city's support. "There's a reason they came here, and none of those reasons have changed." Indeed, Apple didn't come to Mesa, Arizona out of the goodness of its heart -- it specifically chose Mesa because of the attractive economics and overall perks the location provided, including a rather hefty decrease in property taxes and an assurance that the plant would run on renewable energy.
Court docs reveal Apple told GTAT, "Put on your big boy pants and accept the agreement"
Apple can be a notoriously tough partner to negotiate with. With endless mounds of cash in the bank and an ever growing userbase, the company can understandably wield a tremendous amount of power during contract talks. A prime example of this is Apple's recent partnership with GT Advanced Technologies (GTAT). GTAT, as you might recall, filed for bankruptcy a few weeks ago. In the wake of that, GT Advanced COO Daniel Squiller recently submitted an affidavit to the court which illustrates just how tough a negotiating partner Apple can be. To put it mildly, negotiating with Apple is not for the faint of heart. According to Squiller, "Apple embedded itself in the operations of GTAT at the Mesa Facility" that forced GTAT to "divert an inordinate amount of its cash and corporate resources to its operations at the Mesa Facility." As a direct result, Squiller notes that GTAT's viability as a whole was impacted. Apple also embedded itself in GTAT's facility in Salem, Massachusetts that took on the function of an experimental research and development center for the Apple project. Consequently, GTAT has been unable to use that facility for other revenue streams. The affidavit further reads: With a classic bait-and-switch strategy, Apple presented GTAT with an onerous and massively one-sided deal in the fall of 2013. At the outset of negotiations, Apple had offered GTAT what would have been the company's largest sale ever; an order for 2,600 sapphire growing furnaces. In that scenario, GTAT would operate teh furnaces on Apple's behalf, but Apple would own the furnaces. Apple's size and prominence make it the ultimate technology client to land. The deal with Apple was viewed as a potential game-changer for GTAT. In hindsight, it is unclear whether Apple ever intended to purchase any sapphire furnaces from GTAT. Indeed, after months of extensive negotiations over price and related terms, Apple demanded a fundamentally different deal: Apple no longer wanted to buy furnaces from GTAT; instead, Apple offered an arrangement that required GTAT to borrow money from Apple to purchase furnace components and assemble furnaces that would be used to grow sapphire for Apple. The new structure, as a contract matter, shifted all economic risk to GTAT, because Apple would act as a lender and would have no obligation to purchase any sapphire furnaces, nor did it have any obligation to purchase any sapphire material produced by GTAT. At the same time, Apple constrained GTAT from doing business with any other manufacturer in or supplier to the consumer electronics market, subject to extreme penalties... Of course, the counter to this is that GTAT entered contract negotiations with Apple at arms length and no one forced the company to sign anything it didn't want to sign. GTAT's deal with Apple was a calculated risk. Of course Apple wouldn't blindly agree to buy a product without first testing it to see if it met its technical specifications. For GTAT to complain about this fact seems rather strange given its position as a sophisticated company more than capable of negotiating complex and large-scale contracts. In any event, the best portion of the affidavit relays that when GTAT was unsure about signing on the dotted line, Apple said, "Put on your big boy pants and accept the agreement." Another gem: Apple told GTAT that there's no incentive for them to negotiate because they don't negotiate with suppliers. AppleInsider has more on some of the details surrounding Apple's secretive supplier agreements over here.
SEC investigating suspicious trading activity of GT Advanced shares
The fallout from GT Advanced Technologies' (GTAT) failed partnership with Apple continues to pile up. The SEC is now actively investigating stock sales made by GTAT executives in the weeks and months leading up to the unveiling of the iPhone 6. The partnership between Apple and GTAT reportedly centered on manufacturing sapphire displays for the iPhone 6. Manufacturing and quality control problems, however, caused GTAT to miss a number of operational and technical benchmarks imposed by Apple. Notably, recently filed court documents have indicated that these problems may have started all the way back in February. Curiously, GTAT COO Daniel Squiller sold 33% of his GTAT shares in the months preceding the iPhone 6 unveiling. Meanwhile, GTAT CEO Thomas Guiterrez sold $160,000 worth of GTAT shares just one day before the iPhone 6 unveiling. With shares of GTAT dropping by over 90% in the wake of the company filing for bankruptcy, it's only natural that questions of impropriety have been raised. A recently filed Form 8-K from GT Advanced reads in part: On October 15, 2014, the Securities and Exchange Commission (the "SEC") sent a letter to the Company noting that it was conducting an inquiry into matters involving the Company (the "SEC Inquiry"). The SEC is seeking certain information regarding trading activity in the Company's securities, as well as the Company's sapphire business and securities offering going back to January 1, 2013, and requesting the preservation and production of documents. The Company is fully cooperating with the SEC.
Document details problems between Apple and sapphire supplier GT Advanced
When GT Advanced filed for Chapter 11 bankruptcy earlier this month, COO Daniel Squiller included a sealed affidavit with details on GT Advanced's relationship with Apple. The document was not made public due to non-disclosure agreements between the two companies. Any breach of this agreement would cost GT $50 million for each violation. After weeks of discussion about what details should be made public, GT Advanced filed a revised declaration that explains what happened to the deal between the two companies, reports Fortune. In summary, the production of mass quantities of sapphire was too costly and not fast enough to meet the manufacturing goals agreed upon by the two companies. Squiller summarizes: The key to making the transaction profitable for both sides was the production of a sufficient number of 262kg boules of sapphire crystal meeting the specifications required by Apple. GTAT has sold over 500 sapphire furnaces to Asian customers that produce 115kg boules. Most sapphire manufacturers using non-GTAT furnaces produce boules of less than 100kg in size. Production of sapphire at 262kg would provide for scale, that if accomplished, would be profitable to both Apple and GTAT. Unfortunately, the production of 262kg boules of sapphire could not be accomplished within the time frames the parties had agreed, and was more expensive than anticipated. These problems and difficulties resulted in a liquidity crisis at GTAT, which led to the commencement of these chapter 11 cases." Additional details in the document suggest the deal favored Apple, while putting GT Advanced at risk with Squiller providing 20 examples of this disparity. Examples include a clause that requires GT to produce millions of units of sapphire that Apple was not contractually required to buy and a delivery guarantee that forced GT to purchase and ship sapphire from third-parties if it can't fulfill Apple's purchase orders using its own supply of the material. These examples only address a few of GT's complaints. Fortune lists all 20 claims along with other details about GT's sudden and unexpected bankruptcy filing.
GT Advanced Technologies reaches settlement agreement with Apple
GT Advanced Technologies announced today that it reached a settlement agreement with Apple. Under the agreement, GT Advanced will wind down sapphire production at their Mesa, Arizona facility and will completely exit the sapphire production business. Under terms of the agreement, GT Advanced will retain ownership of all of its sapphire production equipment, effectively putting an end to any rumors that Apple might swoop in and buy the machinery at below cost. As for the loan amounts GT Advanced owes Apple, the settlement agreement stipulates that GT Advanced has four years to pay Apple back, interest free. Under the terms of the settlement agreement, which is subject to approval by the Bankruptcy Court, GT will be released from all exclusivity obligations under its various agreements with Apple. GT will retain ownership of all production, ancillary and inventory assets located in Mesa and Apple is provided with a mechanism for recovering its $439 million pre-payment made to GT over a period of up to four years without interest, solely from a portion of the proceeds from ASF sales. The agreement provides for a mutual release of any and all claims by both parties. As a result of the agreed upon terms, GT retains control of its intellectual property and will be able to sell its sapphire growth and fabrication technology, including ASF and Hyperion™, without restrictions. GT and Apple will continue their technical exchange involving the development of processes for growing next generation sapphire boules as GT continues to build on its successfully deployed ASF115Kg technology and expand its range above 165Kg. GT Advanced and Apple's partnership began in earnest back in late 2013, with the two companies purportedly working together to develop sapphire displays for the iPhone 6. Under terms of the original deal, Apple helped GT Advanced get a manufacturing plant up and running and even financed the purchase of advanced sapphire manufacturing equipment. Per the agreement, Apple's financing was to be accomplished via four separate payment installments to GT Advanced, contingent upon certain operational and technical requirements being met. Somewhere along the way, though, things started to fall apart. According to the rumor mill, GT Advanced began missing technical requirements as early as February of last year. When Apple withheld its last loan installment last quarter, GT Advanced, with just $85 million in the bank and much more owed to creditors, filed for bankruptcy.
GT Advanced Technologies to axe 727 jobs at Arizona plant
Just a few days after indicating its intention to wind down operations, GT Advanced Technologies on Thursday said it plans to eliminate 727 jobs from its sapphire manufacturing plant in Mesa, Arizona beginning next week. AZCentral reports: GT plans to permanently eliminate 727 jobs at the Mesa plant, according to a public notification sent to Mesa City Council members as required by the federal Worker Adjustment and Retraining Notification (WARN) Act. That includes 524 production workers, 108 technical positions, 70 management jobs and 25 administrative jobs, according to the notice signed by Linda Luman, vice president of human resources for GT. When GT Advanced first filed for bankruptcy on October 6, Apple issued a statement conveying that it was surprised by the move and that it would remain focused on preserving jobs at the plant. Looking ahead, and barring some unforeseen event like a corporate buyout, it appears that Apple's partnership with GT Advanced is forever severed as GT Advanced continues to circle the drain. And with GT Advanced's fall from grace, so too goes any hope that future iPhone models might feature sapphire coated displays. While other companies are more than capable of manufacturing sapphire, GT Advanced was unique insofar as it had developed advanced techniques for creating large panes of thin sapphire that could be used on smartphones. At the same time, it's believed that the sapphire manufactured by GT Advanced failed to meet Apple's technical requirements.
GT Advanced Technologies' contract with Apple included a $50 million penalty for leaking future product info
Recent court filings from GT Advanced Technologies (GTAT) have helped shed a bit of light on the confidential agreements Apple typically enters into with suppliers. Originally spotted by the Financial Times, Apple's contract with GTAT included a US$50 million penalty for any leak regarding future Apple products. Details of Apple's non-disclosure agreements, which suppliers are not even allowed to acknowledge, have already emerged in court filings by GT Advanced Technologies, including the $50m penalty the iPhone maker imposes for any leak of product information. While Apple, of course, engages in non-disclosure agreements with all of its suppliers, this is the first time we've seen specific details regarding a penalty clause involving an Apple supplier. Meanwhile, GTAT is hoping to have the contracts it entered into with Apple declared null and void. In a court filing made last week, GTAT articulated that adhering to its contract agreements with Apple "is no longer a viable business option." What's more, GTAT went so far as to call the contract terms it signed with Apple "oppressive and burdensome."
Apple fines companies $50 million for leaks
For a company that's obsessed with secrecy, it's no surprise to see that Apple imposes tight restrictions on what its suppliers can say. If your company leaks a product, or starts boasting about producing components for a future iOS device, then you'll be asked to pay a fine of no less than $50 million. That's chump change for a company like Samsung, but a fortune for smaller outfits that may produce only one or two small pieces. Speaking of which, this fact only emerged thanks to GT Advanced Technologies, which has just filed for Chapter 11 bankruptcy after deciding to close and sell-off its loss-making sapphire crystal manufacturing facilities.
GT Advanced hopes to cease operations this year; calls contract with Apple "oppressive and burdensome"
The saga involving GT Advanced Technologies' bankruptcy filing continues to take strange turns. One day after signaling its intention to wind down operations and presumably sell whatever assets remain a report today from MacRumors relays that GTAT today filed court documents seeking to free itself from the executed contracts it signed with Apple, calling the terms of the deal "oppressive and burdensome." The filing reads in part: Before the Petition Date, on October 21, 2013, GTAT entered into several agreements with or for the benefit of Apple. The agreements shifted the GTAT Group's sapphire-related business model from being primarily an equipment manufacturer/supplier to also being a sapphire materials manufacturers. As discussed in detail in the Supplemental First Day Declaration, the agreements imposed oppressive and burdensome terms and obligations on GTAT. The filing further articulates that operating under terms of the original business agreement signed with Apple is "no longer a viable business option" for the company. Consequently, GT Advanced is hoping to have its signed agreements declared null and void. If Apple was caught off-guard by GTAT's bankruptcy filing, one can only imagine how they're reacting to this. In a second filing made today, GTAT laid out its plans to wind down business operations by December 31, 2014.
Apple sapphire source GT Advanced Technologies wants to shutter plant
Re/Code is reporting that GT Advanced Technologies, the company Apple tapped to begin looking into making device screens from synthetic sapphire, is requesting court permission to close its plant in Arizona. This comes days after the surprise announcement that GT had filed for Chapter 11 bankruptcy protection. In its filing, GT noted that it had not been able to meet certain manufacturing operation and quality control metrics, causing Apple to withhold a US$139 million loan installment coming due in October. A total of $578 million had been floated by Apple to help GT build the new plant, and the stalled payment put the company into a untenable financial situation. Apple spokespersons have reiterated that the company will do all it can to save jobs in Arizona. Whether this means Apple will bail out GT or even purchase the plant itself is unknown.
Apple was surprised by GT Advanced bankruptcy
Apple was caught off-guard by GT Advanced Technologies' announcement that they plan to file for Chapter 11 bankruptcy, according to a report published today in Reuters. In the iPhone maker's first public response, it said it was working with Arizona officials on its next moves. "We are focused on preserving jobs in Arizona following GT's surprising decision and we will continue to work with state and local officials as we consider our next steps," spokesman Chris Gaither said. According to the Wall Street Journal, GT Advanced Technologies ran into financial trouble when Apple opted not to pay the company a $139 million loan installment it had coming in October. Under the terms of Apple's contract with GT Advanced Technologies, installment payments would only be doled out when certain operational and quality control metrics were met. That said, specific details regarding what type of milestones GT Advanced missed, at this point, remain unclear.
