GT Advanced to exit sapphire production business, Apple to recover $439M prepayment over 4 years

Posted:
in General Discussion edited October 2014
Closing the book on its short-lived supplier agreement with Apple, GT Advanced Technologies announced on Thursday that its finalized settlement will see the company exit the sapphire production business, and spend the next four years paying back -- interest free -- the $439 million prepayment it received from Apple.



As part of the settlement with Apple, GT Advanced Technologies has agreed to no longer produce sapphire materials. Instead, the company plans to refocus its business as an "equipment supplier, manufacturing and developing sapphire growth systems and process."

The settlement must still be approved by a bankruptcy court in November. The deal allows GT Advanced to be released from its exclusive agreement with Apple, and it will retain "all production, ancillary and inventory assets located in Mesa."




GT Advanced plans to go on selling more than 2,000 "Advanced Sapphire Furnaces" on the open market without any restrictions in order to repay its debt.

As a result, Apple is "provided with a mechanism for recovering" the $439 million prepayment it made to GT Advanced. That was only part of the $578 million contract Apple inked with GTAT a year ago, but the last $139 million was withheld after the sapphire maker was unable to deliver on agreed upon production goals.

Though Apple will recover the $439 million it invested in the company, it will take up to four years to do so, and the money will be paid back without interest. The money will come from a portion of the proceeds from the furnaces GT Advanced plans to sell.

Touch ID


In the end, the deal between GT Advanced and Apple lived for less than a year -- the original master development and supply agreement between the two parties was signed on Oct. 31, 2013. GTAT has already begun the process of shutting down its facility in Mesa, Ariz., and about 650 employees there have been laid off.

Work is still happening at the facility, but will be wound down over the coming months. GTAT has said it is "committed to supporting" the employees laid off, as well as their families, "through this transition."

"We realize that our filing for Chapter 11 protection has caused uncertainty and hardship for many of our important stakeholders," said Tom Gutierrez, president and chief executive officer of GTAT. "We have been working diligently to develop a restructuring plan that will allow us to emerge from Chapter 11 as quickly as possible and with the operating flexibility and resources to position GT for long-term success. This agreement with Apple is an important step in that direction as it will allow us to monetize our advanced sapphire growth and fabrication technologies in an unrestricted manner."

GT Advanced shocked investors and observers alike when the company filed for bankruptcy earlier this month. The exact details surrounding the company's implosion remain unknown, thanks in part to strict confidentiality agreements with Apple.

Apple currently uses scratch-resistant sapphire crystal to protect the fingerprint sensor found within the Touch ID home button on its iPhone and iPad lineups. Sapphire also covers and protects the rear iSight camera on the company's iPhones.
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Comments

  • Reply 1 of 45

    The real issue is completely missing from the article: "Who will be the provider of Sapphire now that GT Advanced is no longer in business?"  Apple need a steady supply for the TouchID and possibly the new watch. 

  • Reply 2 of 45
    MacProMacPro Posts: 18,165member
    So I wonder will Apple go DIY or find another manufacturer.
  • Reply 3 of 45
    lkrupplkrupp Posts: 6,950member

    What happened to the “It’s all Apple’s fault” we were hearing from this outfit? What happened to the for-sure lawsuit that was coming?

     

    Meanwhile there’s an article on Yahoo finance that warms the soul of any Apple follower. Seems IDC, the ‘research giant’ that is always making predictions of doom about Apple, underestimated last quarter’s Mac sales by almost a whopping 10%. Now questions are being asked about IDC’s research ability. Who’da thunk it?

  • Reply 4 of 45
    lkrupplkrupp Posts: 6,950member
    Quote:

    Originally Posted by digitalclips View Post



    So I wonder will Apple go DIY or find another manufacturer.



    Well, there are those brand new closed factories sitting there for the taking.

  • Reply 5 of 45
    rogifanrogifan Posts: 10,669member
    And Apple stock just reached an all time high of 104.37. :D
  • Reply 6 of 45
    Quote:

    Originally Posted by digitalclips View Post



    So I wonder will Apple go DIY or find another manufacturer.

     

    Another article suggests Rubicon has an existing relationship with Apple.  Looks like GTAT was just one of several sources for Apple's Sapphire.

  • Reply 7 of 45
    pfisherpfisher Posts: 758member

    GTAT is a great example of the risk of buying individual stocks. There is a lot of risk and potential reward. It truly is gambling to buy individual stocks because you are putting money on a company with limited information. GTAT looked like a slam dunk with such a big order from Apple. Or so it seemed.

     

    Even Buffet, who can pay people to do lots of analysis on companies, lost a ton of money on IBM very recently.

     

    Buffet did recommend that people invest their retirement funds into low-cost Vanguard index funds. You can buy the whole market. You don't have the reward of an individual stock doubling in price, but then you don't have the risk like buying and losing your shirt.

     

    GTAT - too good to be true (in this case, unfortunately).

     

    At least one person has lost their life savings by betting on this company.

     

    It's like putting money on the roulette wheel (or worse?)

  • Reply 8 of 45
    mr. hmr. h Posts: 4,700member
    The CEO and other directors of GTAT should go to prison for fraud. Shocking that this doesn't appear to be on the cards. They get to laugh all the way to the bank whilst 650 people have lost their jobs, and investors have taken very heavy losses.
  • Reply 9 of 45
    MacProMacPro Posts: 18,165member
    lkrupp wrote: »

    Well, there are those brand new closed factories sitting there for the taking.

    My thoughts exactly. It would be more typical though for Apple to prefer to have others manufacture. No reason why they could not fund such a venture though.
  • Reply 10 of 45
    MacProMacPro Posts: 18,165member
    Another article suggests Rubicon has an existing relationship with Apple.  Looks like GTAT was just one of several sources for Apple's Sapphire.

    That would be Tim's MO I'm happy to say. Far too smart to ever be dependent ... you listening Scamsung? ;)
  • Reply 11 of 45
    I am a bit surpised at this. I would have thought Apple, already having manufacturing in the U.S., would have either a) moved to own GTAT, or b) at least taken possesion of equipment to build out their own factories.

    As sapphire is so expensive, Apple could have saved on margin by manufacturing in-house.

    I am quite surprised!
  • Reply 12 of 45
    MacProMacPro Posts: 18,165member
    I am a bit surpised at this. I would have thought Apple, already having manufacturing in the U.S., would have either a) moved to own GTAT, or b) at least taken possesion of equipment to build out their own factories.

    As sapphire is so expensive, Apple could have saved on margin by manufacturing in-house.

    I am quite surprised!

    Given the smarts of Tim and his available budget, I am pretty confident he has his bases covered for the good of Apple and AAPL.
  • Reply 13 of 45
    gtrgtr Posts: 3,231member
    mr. h wrote: »
    The CEO and other directors of GTAT should go to prison for fraud. Shocking that this doesn't appear to be on the cards. They get to laugh all the way to the bank whilst 650 people have lost their jobs, and investors have taken very heavy losses.

    I've always found it a bit hard to stomach when management of large companies and politicians are caught engaging in criminal activity that resigning or retiring seems to allow them to avoid prosecution.

    It's "diplomatic immunity" all over again...
  • Reply 14 of 45
    MacProMacPro Posts: 18,165member
    sog35 wrote: »
    I agree buying stocks like GTAT is like gambling.  But not all stocks are.

    Buffet did not lose a cent.  He will only lose when he acutally SELLS the stock.  He holds stocks for DECADES.  He is doing fine.

    If you trade individual stocks you risk more but your returns can be greater also.

    The majority of my money is in index funds.  My S&P index fund has returned 5% so far YTD.
    But I also trade individual stocks.  This year my return for individual stocks is 44% which far out paces my index funds.  More reward = more risk. 

    This year I only traded 2 stocks:
    Apple - Made $40k
    GTAT - lost $5k
    Net - 35K gain with 80k invested

    We own the exact same individual stocks! :)/:\ Same here, AAPL trounced (and that is being polite) all other investments.
  • Reply 15 of 45
    MacProMacPro Posts: 18,165member
    gtr wrote: »
    I've always found it a bit hard to stomach when management of large companies and politicians are caught engaging in criminal activity that resigning or retiring seems to allow them to avoid prosecution.

    It's "diplomatic immunity" all over again...

    There are definitely times when ritual seppuku should be mandatory.
  • Reply 16 of 45
    Given the smarts of Tim and his available budget, I am pretty confident he has his bases covered for the good of Apple and AAPL.

    Wasn't suggesting he did not. But as a supply chain grand master, I would have thought him to take this opportunity to control a costly component that has the factory already in-country.

    It's not like they are not selling the ovens anyway to pay back Apple. I just thought this would have been an easy grab.
  • Reply 17 of 45
    malaxmalax Posts: 1,598member
    Quote:

    Originally Posted by sog35 View Post

     

     

    I agree buying stocks like GTAT is like gambling.  But not all stocks are.

     

    Buffet did not lose a cent.  He will only lose when he acutally SELLS the stock.  He holds stocks for DECADES.  He is doing fine.

     


     

    Using that logic, anyone who invested in GTAT could "not lose a cent" either by just holding on their crappy stock forever.  Or if AAPL dropped by 25% tomorrow none of us would have lost any money, but that's not a very useful perspective.

  • Reply 18 of 45
    Quote:

    Originally Posted by malax View Post

     

     

    Using that logic, anyone who invested in GTAT could "not lose a cent" either by just holding on their crappy stock forever.  Or if AAPL dropped by 25% tomorrow none of us would have lost any money, but that's not a very useful perspective.




    If apple drops %25 tomorrow you HAVEN'T lost any money - unless you need to sell tomorrow, for some reason.  Do you consider yourself poorer every time the dollar drops a quarter of a cent?  

     

    GTAT stocks could dissolve, so you'd lose everything when that happens

  • Reply 19 of 45
    malaxmalax Posts: 1,598member

    This was resolved remarkably quickly (and relatively painlessly for Apple).  I'm used to hearing these courtroom dramas that drag on for years and years.

     

    Apple still owns the building where all the furnaces are located (I believe), so I wouldn't be surprised if Apple is involved in orchestrating the transition to a new company (either a brand-new company or an existing firm).

     

    My current thinking is that this is more about bad luck, poor execution, and optimism than fraud.  I don't know if the CEO is just a hired gun or the owner/founder, but if the former I don't expect he'll be in charge much longer.

  • Reply 20 of 45
    malaxmalax Posts: 1,598member
    Quote:

    Originally Posted by joelsalt View Post

     



    If apple drops %25 tomorrow you HAVEN'T lost any money - unless you need to sell tomorrow, for some reason.  Do you consider yourself poorer every time the dollar drops a quarter of a cent?

     

    GTAT stocks could dissolve, so you'd lose everything when that happens


    Most people would characterize a change in their current net worth as making or losing money.  When I get my quarterly retirement fund statements, I note those gains or losses.  I do consider myself wealthier now with AAPL at an all-time high than when I bought those shares for a fraction of their current price, because AAPL shares a fungible assets that I convert to cash quickly and easily.

     

    I just have to laugh that sog35--who FREAKED OUT when his GTAT investment tanked--is the one who initially argued that when Buffett's IBM investment was underwater he didn't lose any money.  Again, using that logic, he hadn't lost of penny.

     

    I get the sematic point that losses aren't realized until the asset is actually sold, but in terms of net worth every change matters.

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