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Businesses The Almighty Buck Apple

Apple Sapphire Glass Supplier GT Advanced Files For Bankruptcy 171

Posted by samzenpus from the end-of-the-line dept.
mrspoonsi writes GT Advanced Technologies is filing for bankruptcy. In an announcement on Monday, GT Advanced, which makes sapphire displays that many investors hoped would be in Apple's newest iPhone, said that it was filing for Chapter 11 bankruptcy. In early September, shares of GT Advanced got crushed after the company's sapphire displays were not in the latest version of Apple's iPhone 6 and 6 Plus. GT Advanced, however, signed a multi-year agreement with Apple last November to supply the company with sapphire material. That agreement included a $578 million prepayment, which GT Advanced is set to repay Apple over a five-year period starting in 2015.
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Apple Sapphire Glass Supplier GT Advanced Files For Bankruptcy More

Apple Sapphire Glass Supplier GT Advanced Files For Bankruptcy

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  • How can you (Score:4, Insightful)

    by mrspoonsi ( 2955715 ) on Monday October 06, 2014 @12:29PM (#48074025)
    get a $578M prepayment and go bankrupt in 10 months?

    • By having to carry that payment as a liability, presumably according to the contract.

    • They realized they wouldn't be able to deliver on the contract?

      It's not like free money.

    • If you have a debt of more then 578M, and no way to earn more money.

    • Re: (Score:3, Funny)

      by Lehk228 ( 705449 )
      Cocaine is a hell of a drug.

    • Re:How can you (Score:4, Interesting)

      by geekmux ( 1040042 ) on Monday October 06, 2014 @01:04PM (#48074345)

      get a $578M prepayment and go bankrupt in 10 months?

      While many would suspect foul play here, I'm willing to bet it costs more than a nickel or two to ramp up to support one of the most popular electronic devices in existence.

    • Re: (Score:2)

      by alen ( 225700 )

      lend company money for glass
      watch them go bankrupt
      ?
      buy them up in BK court and take all the tech for yourself on the cheap

    • The pre-payment was likely for tooling setup costs, and when the tested material did not beat gorilla glass (as it was likely promised it would), the deal unwound and the reimbursement schedule activated. Now you have this company that had multi-billion dollars in future revenue contracts suddenly losing those contracts and in fact having a half billion dollar liability and not enough revenue to keep the lights on and people paid.

      That's a great recipe for disaster, or in this case bankruptcy.

    • It's cashflow. I guess it halted after this: http://www.macrumors.com/2014/... [macrumors.com]

      You have to be able to pay your staff, overheads and other costs etc. The new iPhone is at least a year away, I guess they couldn't secure a loan.

  • Possible sequence (Score:4, Insightful)

    by Mike_EE_U_of_I ( 1493783 ) on Monday October 06, 2014 @12:40PM (#48074137)

    I don't know that this is what happened, but it seems likely.

    1) Apple wants to use sapphire for main glass in Iphone.

    2) Apple signs contract with GTAT to supply the sapphire, including a pile of money to build sapphire production facilities.

    3) Apple pushes all risk onto GTAT. IOW, if Apple decides not to use the sapphire for the displays, GTAT has to repay the pile of money from step 2.

    4) Apple does not use sapphire. GTAT can't repay money because they already spent it building sapphire production lines which no have no demand.

    5) GTAT declares bankruptcy.

    • Re:Possible sequence (Score:5, Insightful)

      by Kenja ( 541830 ) on Monday October 06, 2014 @12:47PM (#48074195)
      You forgot step 3.5) Where the "sapphire glass" turns out to not meet the specifications Apple requested and GTAT committed to providing.

      • Re: (Score:2, Insightful)

        by AmiMoJo ( 196126 ) *

        According to TFA the sapphire was never intended for the iPhone. That was just stupid investors hoping it would be, and then being disappointed when it wasn't.

        The iWatch will use sapphire glass, as many watches already do. This is bad for Apple and anyone else who uses GTAT though, because through no fault of their own they were forced into bankruptcy and may now find it hard to meet demand when iWatch production ramps up.

        • According to TFA the sapphire was never intended for the iPhone. That was just stupid investors hoping it would be, and then being disappointed when it wasn't.

          $578 million seems like an expensive set of dice.

          Those are investors that probably shouldn't go to Vegas...unless they want to help "invest" in that town too. That's one hell of a wing-it attitude.

          • You get ~1k investors each putting $500k in; the trick being that they invest $500k into something every month and operate on a 5 year time scale, so they actually have something like $30M in investments. Every so often they get the equivalent of facebook, ebay, or amazon to make up the occasional failure such as this.

        • Except, there have been screen (or rather the lenses with digitizers) produced that were tested via optical spectroscopy and validated to be comprised of sapphire, and of the dimensions of the iPhone 6 displays. Those didn't just appear out of thin air, they were manufactured by *someone*, and as such it is reasonable make the leap that when Apple paid GTAT $578M upfront to ramp up large scale sapphire production through the addition of enough furnaces that it could produce enough sapphire that would enable

        • "No fault of their own"?

          Other than signing a contract that didn't have some level of binding/protection in it for GTAT.

        • Re: (Score:2, Insightful)

          by pnutjam ( 523990 )
          ...when iWatch production ramps up.

          So, basically never.

        • The iWatch will use sapphire glass, as many watches already do. This is bad for Apple and anyone else who uses GTAT though, because through no fault of their own they were forced into bankruptcy and may now find it hard to meet demand when iWatch production ramps up.

          Bankruptcy comes in many different forms. For a corporation, chapter 7(liquidation) is pretty rare, most of the time it's chapter 11 - restructuring. The courts and creditors are smart enough to realize that a business selling things for a profit will get them more of their money back than one that isn't. So the health of the company is a concern. Heck, in some cases(see GM for an example), the company may end up reorganized with the creditors being the new owners. So again, a healthy business is bette

      • Re:Possible sequence (Score:5, Informative)

        by Charliemopps ( 1157495 ) on Monday October 06, 2014 @01:16PM (#48074441)

        Having been on the receiving end of a contract written by a company the size of Apple, I can tell you that by "specifications" the contract likely said "...and any other reason that Apple Inc. so chooses..." Companies the size of Apple have so much weight they can literally just bankrupt you.

        The contracts I've seen were generally between parts manufacturers and automakers. The lure of all the money from GM or Ford is very enticing. But the contractual agreement you enter in is very precarious.

        You will increase your production capacity by 1000% Here's the money to do that.
        You will deliver parts on demand, we will not store any parts.
        If we chose not to use those parts, we do not have to pay you.
        If we chose to leave this agreement, you have to pay our entire investment back.

        What they're basically doing is putting their entire parts chain into its own company, forcing that company to store all of the parts and all of the liability. If they suddenly decide not to go that route anymore, the company and all of the parts dispersers. Because they have to refund your investment, you can ensure that the vast majority of all the assets you invested are returned to you while all of the liability lands on others outside you company. It's all good for the Parent company and all bad for the supplier. The banks lose money, the employees get fired, the owners lose their business.

        I've seen agreements like this where the parent company demanded some change that the supplier couldn't pull off as quickly as desired. The parent company owned the tooling, per the contract, and literally pulled it within hours and had it over at some other company. The supplier was bankrupt and laying people off withing 48hrs. That's how asynchronous these deals have become.

        And don't think this is just Apple or automotive companies. This is how things are done now. I would not want to own a parts supplier in these times.

        • I would not want to own a parts supplier in these times.

          It's ok to be a parts supplier but you may not want to be a Tier 1 parts supplier to a large company. When you do that much business with a single enormous company you are pretty much their bitch and there isn't much you can do about it. The product volume when dealing directly with big companies is hard to resist but can bankrupt you if you aren't careful.

          One of the big problems you didn't note about dealing with big automotive companies is that they seem to have never heard of the bullwhip effect [wikipedia.org]. My c

        • Re: (Score:2)

          by MarkvW ( 1037596 )

          You probably mean 'asymmetric,' but what the hell. Very good post.

        • Well, when the spec is "Glass doesn't crack when you drop it", and the glass cracks when you drop it, it shouldn't have taken the company until they were knee deep in shit to figure out that they couldn't deliver. They should have found out from the early prototypes that they had a problem.

          There was a lot of money involved so they decided to play the game. They played, and they lost.
      • 3.6) Apple used sapphire from an Asian supplier, who met the specification...

      • The current rumor going around [cultofmac.com] is that the sapphire itself is fine, but that the two companies contracted to take the sapphire boules (165 kg sapphire crystal blocks) and do the finishing work to cut them into screens suitable for the iPhone were having lower-than-expected yields (~25%), simply because of problems on their end.

        Which is to say, while GT Advanced Technologies is to blame for not taking proper precautionary steps to ensure that they'd remain stable if the deal didn't happen, they aren't appare

    • Re: (Score:2)

      by debrain ( 29228 )

      The risk was not pushed onto GTAT so much as their creditors. Let's hope the investment community was as good at assessing the risk of GTAT as they were for subprime mortgages/Countrywide Financial, or Greece/Iceland/Argentina/etc, or Black Scholes/Long-Term Capital Management, or Lehman Brothers, or , or ... oh wait.

      • So back onto Apple. You don't think bankruptcy was a scenario they all considered when they were writing the contract. Sure Apple pushed the risk onto GTAT, but they damn well knew that bankruptcy was the inevitable counter move if the deal fell apart.

        Pricing this risk into any other loans GTAT got in the interim is the kind of problem that puts bankers into the anal diamond manufacturing business.

    • But where would Apple get the sapphire for their watch then? I'm assuming that Apple intended to use it for the iPhone and watch but GT was having trouble with yields. So Apple had to use it only on the watch.

    • Re: (Score:3, Insightful)

      by bill_mcgonigle ( 4333 ) *

      6) the governments socialize the losses of GTAT onto all of the companies that GTAT owes money to. Had GTAT and Apple succeeded, all of the profits would have been private, mostly recognized in Cork.

      Three cheers for corporate welfare!

      • Had GTAT and Apple succeeded, all of the profits would have been private

        Wait. What?!

        The part of the profits that would change hands if they succeed is called "interest". All the companies that GTAT owns money to would get some of it.

      • Re: (Score:2)

        by uncqual ( 836337 )

        All of GTAT's creditor's (like all creditors) presumably knew there was a risk that GTAT (like all companies) couldn't pay their bills. The creditors should have (and, probably did) factor that risk into either the loans they made to GTAT (such as via higher interest rates), the price of the products they sold GTAT (i.e., higher prices), or the terms on which they sold to GTAT (such as C.O.D. or net-10 vs. net-60).

        It's a stretch to say that GTAT's losses are being "socialized" by the government onto their c

      • Re: (Score:3)

        by tlhIngan ( 30335 )

        the governments socialize the losses of GTAT onto all of the companies that GTAT owes money to. Had GTAT and Apple succeeded, all of the profits would have been private, mostly recognized in Cork.

        Actually, that can't happen because the GTA plant Apple paid for (and bought the equipment for) is in Arizona (I think). So any profits GTA makes has to be reported in US dollars and both Apple and GTA have to pay US taxes on it.

        To exploit it in Cork requires Apple to then sell the panels at cost to Apple's subsidi

    • Re:Possible sequence (Score:5, Interesting)

      by cdrudge ( 68377 ) on Monday October 06, 2014 @12:59PM (#48074291) Homepage

      You forgot:

      6) Apple obtains GTAT through bankruptcy proceedings in lieu of being repaid for cheaper than what it would have cost before #2

      7) Apple vertically integrates a component of supply chain using change it found in their lobby's couch cushions.

      • Comment removed based on user account deletion

        • Why would Samsung be involved at all? GT Advanced owes Apple several billion dollars for the machinery Apple purchased on GT's behalf. That's why Apple is in a position where they may just outright takeover the company, since if a company like Samsung decided to buy GT Advanced, they'd be on the hook for that debt and would also have to deal with any contracts GT Advanced made with Apple already...and Apple tends to love their multi-year, lock-in contracts.

      • Re: (Score:2)

        by Dr. Evil ( 3501 )

        Bill Gates? is that you?

      • Re: (Score:2)

        by sribe ( 304414 )

        7) Apple vertically integrates a component of supply chain using change it found in their lobby's couch cushions.

        Except that Apple does everything they possibly can to avoid having to own any component of their supply chain...

    • Re: (Score:2)

      by jd2112 ( 1535857 )
      6) Apple buys GTAT at fire-sale pricing (through a shell company, of course, to divert suspicion)
      7) Apple uses sapphire for iPhone 6S or 7
      8) (even more) PROFIT!!!!
    • What! No

      6) Profit!

      Slashdot is no more what it used to be...

    • 6) Apples turns around and buys company with a discount for the debt owed.

      Why you ask? The stock at at 10 before today and 20 not that long ago. At 10, the company is 1.43 Billion dollars. So they get the whole thing for 600 million. If they had try to outright buy them, it could have easily cost 2 Billion dollars.

      Lucky I don't work for Apple, because that is what I would have done and that would truly be Evil.

  • Everyone was wondering why Apple didn't use sapphire for the iPhone 6 models. Maybe Apple determined that GT could not supply enough sapphire. I think sapphire is used for the Apple watch will require much less material.

    • Re: (Score:2)

      by cdrudge ( 68377 )

      I think sapphire is used for the Apple watch will require much less material.

      Way to go out on a limb with that though.

    • Re: (Score:2)

      by mlts ( 1038732 )

      There is also the fact that the crystal on a watch has different properties as the glass on a phone or tablet. A watch crystal needs to be a lot harder to resist scratches, while a larger display needs to be more resilient to deter shattering.

      If GT does a good job on the Apple Watch, they will have a permanent niche in the market.

    • I think sapphire is used for the Apple watch will require much less material.

      Because the watch has smaller area, or because the only people who will be buying it are the fanboys because it's a watch.

  • So which is it? Did Apple get GTAT's hopes up on using sapphire displays, sends them money, then decides they aren't going that route anymore leaving GTAT with facilities that have no use? Did GTAT have to invest some of its own money to get the production rolling on the sapphire screens, presumably because Apple's near 600 million isn't nearly enough? So is this why they are filing Chapt. 11? Or did GTAT burn to all that cash, only to have nothing to show for it and pissing off Apple in the process?
    • It may be that the yield or the quality/specs/durability/etc. didn't meet the request.

    • We've got all this capacity and technology but, you know, Tim, we could use a little extra grease to keep things moving while you ramp up for the next device rollout, if you catch my meaning. I'd hate for all of this to get mired in the courts and for you to miss a crucial delivery date on a ctrical component in your pretty toys...

  • Chapter 11 is not business death. (Score:5, Informative)

    by IcarusMoth ( 631872 ) on Monday October 06, 2014 @12:57PM (#48074277)
    It might be important to consider that a company filling for chapter 11 bankruptcy protection is not terribly uncommon. The company has no plans to shut down, nor liquidate assets. Ch. 11 is all about restructuring debt so that they can pay off the creditors and return to normal operating procedures. Most people in this thread are treating this like a Ch. 7 which it is not. In fact the difference between the two are so stark that many smart investors will buy into companies that have good prospects and a plan in Ch. 11. It can make a company much much stronger on the back end.
    • Indeed. From GTAT's website [gtat.com] it appears that they have 3 main lines of business one of which is sappire. GTAT might sell off different units in Chapter 11 and make sapphire a separate company. Apple or someone else could buy from them.

    • Re:Chapter 11 is not business death. (Score:4, Funny)

      by geekmux ( 1040042 ) on Monday October 06, 2014 @01:28PM (#48074575)

      It might be important to consider that a company filling for chapter 11 bankruptcy protection is not terribly uncommon.

      Well yeah. Just look at Donald Trump. He turned bankruptcy into a hobby, and it doesn't seem to have affected his hairstyle budget whatsoever.

    • The company has no plans to shut down, nor liquidate assets. Ch. 11 is all about restructuring debt so that they can pay off the creditors and return to normal operating procedures.

      Indeed. Since their re-payments to Apple are technically debt, and Apple is now one of many creditors, I'm curious if it will be "restructured" so they don't have to pay Apple back as much as originally contracted.

  • Less a 15% restocking fee, of course.

    So is this GT the same glass we saw in the youtube video of the glass the guy bends almost 180 degrees without it breaking, and scribbles the sharp end of his knife all over and nothing bad happens to it?

  • They have some interesting tech (Score:5, Interesting)

    by hairykrishna ( 740240 ) on Monday October 06, 2014 @01:27PM (#48074565)

    I work in BNCT research and some guys from GT advance have presented at a couple of recent conferences. Of interest to us was their 'hyperion' (yes, like Borderlands) accelerator they'd been developing. Huge amounts of beam current from a fairly compact and easily maintained package. They were planning on using it to peel off very thin layers of sapphire via ion implantation, we could use it as the first stage of a neutron generator and I'm sure there are tons of other industrial applications. The senior guys I met seemed very good - proper engineers with the minimum of marketing bullshit. I think they'll do ok even if this is a pretty major set back.

  • The bullshit baseless Apple rumors have real-world consequences. However, the people that spread them are not touched by those consequences so they will keep making shit up.

  • Wouldn't it be funny if Google bought the company just to screw Apple? I mean they have a multi-year agreement in place so that would be a few years of thumb in the eye like fun. Oh, I can dream...

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