GT Advanced blames Apple for one-sided sapphire contract that resulted in $461M loss

Posted:
in General Discussion edited October 2014
Testimony from chief operating officer of GT Advanced Technologies reveals that the company lost $461 million before it filed for bankruptcy -- a course that the company asserts was the result of "unsustainable" contracts in which it assumed all of the risk, while Apple took none.



GTAT COO Daniel W. Squiller filed a declaration with bankruptcy court in Delaware this week in which he told his side of the story in his company's decline. The 22-page filing reveals a number of new bits of information on exactly what happened behind the scenes as the relationship between GT Advanced and Apple fell apart.
GTAT officials argue that their company assumed all of the risk, and as a result lost nearly a half-billion dollars.
According to Squiller, in order for the deal to be profitable for both sides, GTAT had to be able to produce a "sufficient number" of 262-kilogram boules of sapphire crystal meeting strict specifications required by Apple. Most sapphire producers create boules less than 100-kilograms in size, but GTAT and Apple hoped the larger scale would make production profitable for both companies.

"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," Squiller's filing reads.

Unsurprisingly, the GT Advanced official lays the majority of the blame on Apple. In his view, GTAT assumed all of the risks in the deal, while Apple was responsible for none of it.

In particular, Squiller said that while GT Advanced committed to supplying a significant amount of sapphire to Apple, the iPhone maker was under no obligation to purchase any of it.

Squiller also said that fabrication costs at its facilities in Mesa, Ariz., and Salem, Mass., were higher than anticipated. In his view, the chief reason for this, again, was Apple.

According to Squiller, it was Apple that selected the fabrication equipment for the facilities, not GTAT. And the COO claims that the equipment selected by Apple "could not economically produce a product that Apple would accept."

"GTAT believes that it was unable to achieve its planned fabrication cost and production targets because many of the tools did not meet their performance and reliability specifications," the COO wrote.




And while Apple could make changes to the equipment, specifications or materials used at any time, GTAT had no such capability. GTAT was also unable to negotiate changes to pricing with Apple, and the company sold sapphire material at a "substantial loss."

In all, GT Advanced incurred costs of around $900 million thanks to its project with Apple. Of that, $439 million was funded by Apple's prepayment

"If the pricing set forth in the Apple Agreements could not be renegotiated, GTAT would never realize a profit," Squiller said.




Apple hasn't officially given its side of the story in public, but Squiller's declaration gives an idea of how executives at the iPhone maker view the situation. According to Squiller, he suspects that Apple would say that:
  • The failure of the project was due to GTAT's inability to manufacture sapphire in accordance with the agreement
  • GTAT was free to walk away from negotiations at any point in 2013
  • Contrary to GTAT's assertions, Apple accepted "substantial risks" in the deal
  • GTAT mutually agreed to the specifications it failed to meet
  • "Apple did not wrongfully control or interfere with GTAT's operations"
  • Apple did not know how much money GTAT was losing as a result of the project
While Squiller would disagree with those assertions, he told the court that there is no reason for him to go into further detail, as both Apple and GTAT have agreed to a settlement to put the issue behind them.
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Comments

  • Reply 1 of 91
    melgrossmelgross Posts: 31,375member
    According to my own experience in business over the year, in technologal businesses, where substantial equipment was involved, some designed by us, I would agree that the points he states that Apple would use, are correct. Apple would use those points, and Apple would be correct in them. He gives no reason, as far as we've seen so far, that he went along with all of them.
  • Reply 2 of 91
    kbeatkbeat Posts: 47member
    At this point, it's hard to take anything GTA says seriously. I mean, if the deal was so onerous and one sided in Apple's favor, why the hell did they sign it in the first place? They weren't forced to. They did so because they thought they could produce the product Apple required, and in doing so would make a fortune. When they then failed to produce, they blamed Apple.

    The only question remaining is why Apple would want to do business with people like this?
  • Reply 3 of 91
    bdkennedy1bdkennedy1 Posts: 1,459member

    How is a contract signed by two parties, one sided?

  • Reply 4 of 91
    These guys are crooks. They're acting like petulant children.
  • Reply 5 of 91
    Only an idiot would sign a contract where your company assumes all the risk%u2026 therein lies the problem.
  • Reply 6 of 91
    maestro64maestro64 Posts: 4,453member

    This explain why apple has not announce the price of the higher end sapphire apple watches, they still do not know their costs for sapphire for those watches yet.

  • Reply 7 of 91
    Quote:

    Originally Posted by sog35 View Post

     

    So GTAT was in such dire straights?  Why didn't they warn investors before going bankrupt?  Total CROOKS.

     


     

    I wouldn't be surprised if Apple wouldn't let them do that.  If GTAT had announced a major loss etc, everyone would have know Apple would not be using Safire in their iPhones.

  • Reply 8 of 91
    And in return for all these requirements specified in the contract, they got wads of money. All they had to do is say no to the piles of money and they would not have to live under such burdensome requirements. But, they said yes to the money and by doing so, said yes to the requirements of the contract.

    GTAT, next time just ask for the money without the contract; you'll be better off.
  • Reply 9 of 91
    gtbuzzgtbuzz Posts: 129member

    Follow the Money Trail.  I am glad I sold my few shares of GTAT when I had a bad feeling about them.  Had I kept them I would have lost almost the full purchase value.  GTAT was never forced to enter into a contract with Apple, but they wanted to do so.  Consideration was paid by Apple and GTAT failed to perform.  Now who were the insiders who sold prior to bankruptcy by GTAT ?  If I were Apple and I realized that GTAT was not going to deliver the sapphire, I think I would not have given GTAT the final payment in advance of delivery.  Since this issue of GTAT vs Apple has been resolved by settlement, lets put the issue to rest.  Except for those insiders who sold in advance of GTAT collapse, the matter is closed.

  • Reply 10 of 91
    This might serve as an example of why so much manufacturing is sourced from overseas counties. I wonder how much harder an non-US company would have worked to meet expectations and obligations. Issues of honor, shame, and responsibility.
  • Reply 11 of 91
    tundraboytundraboy Posts: 1,609member
    Quote:
    Originally Posted by KBeat View Post



    At this point, it's hard to take anything GTA says seriously. I mean, if the deal was so onerous and one sided in Apple's favor, why the hell did they sign it in the first place? They weren't forced to. They did so because they thought they could produce the product Apple required, and in doing so would make a fortune. When they then failed to produce, they blamed Apple.



    The only question remaining is why Apple would want to do business with people like this?



    When your real plan all along is to take the money and run, you will sign any contract put before you as long as that gets the check issued right away.

  • Reply 12 of 91
    apple ][apple ][ Posts: 8,360member

    I have no problems with contracts even if they're lopsided.

     

    Apple didn't hold a gun to anybody's head and force them to sign.

  • Reply 13 of 91
    Clearly a case of bad management - on both sides. GTA have only themselves to blame. However it's also not in apples best interest either.
  • Reply 14 of 91
    At some point they said they could do it, and then couldn't. Of course the risk was on them, that is called providing a product. Too bad they were selling vaporware.
  • Reply 15 of 91
    schlackschlack Posts: 683member
    it was their business. it's not like they were ignorant. they took a huge risk to get capital that they hoped would give them a huge payoff. they bet wrong.
  • Reply 16 of 91
    solipsismxsolipsismx Posts: 19,566member
    bdkennedy1 wrote: »
    How is a contract signed by two parties, one sided?

    That's what I'm wondering. It's one thing for a customer not to read their iTunes EULA after each update but it's another for a corporation to not have every character analyzed on a multi-year contract before agreeing to it.
  • Reply 17 of 91

    So GTAT miscalculated the risks when it entered in contract with Apple.  

     

    It is stupid and amateurish for GTAT to claim Apple took no risk.  In fact, Apple lost money and never got what the Sapphire they were looking for.

  • Reply 18 of 91
    They agreed to settle and are in peace with Apple. Good luck with the rest of the hearing.
  • Reply 19 of 91
    droidftwdroidftw Posts: 1,009member
    vinnie-bob wrote: »
    Only an idiot would sign a contract where your company assumes all the risk therein lies the problem.
    Exactly, if someone hands you an unreasonable contract then don't sign it. It's not like Apple coerced a signature from GTAT.
  • Reply 20 of 91
    MacProMacPro Posts: 17,998member
    I didn't really follow this topic closely but remind me how much of a finical loss did he personally suffer because of this awful incident when big bullying Apple forced him, at gun point I assume, to sign a contract he didn't want to?
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