Existing Apple suppliers say GT Advanced promised too much, didn't diversify enough

Posted:
in General Discussion edited November 2014
In the wake of the collapse of sapphire maker GT Advanced Technologies, longtime members of Apple's supply chain have characterized the iPhone maker as a tough but fair partner who offers component makers a chance at success, provided they take proper precautions.

Foxconn


Officials from Pegatron and other unnamed Apple suppliers spoke with The Wall Street Journal about their relationship with the Cupertino, Calif., company, and gave some of the lessons they've learned over the years. The key takeaways were that suppliers should not promise things they cannot deliver, and that Apple partners should diversify and make arrangements with other companies.

While this might sound like basic business advice, suppliers believe those factors played a part in the implosion of GT Advanced, a sapphire maker that contracted with Apple but couldn't deliver the material as promised. In less than a year after it signed a half-billion-dollar contract with Apple, the company imploded and filed for bankruptcy.

For starters, GT Advanced told Apple it would be able to build extraordinarily large sapphire boules sized at 578 pounds -- double the size of competing products. But GT Advanced struggled to manufacture boules of sapphire at that size, experiencing poor yield rates and producing tons of material that was unusable.

Over-promising to Apple, which is known for being strict and demanding, is a critical mistake, suppliers who spoke with the Journal said. One person said that suppliers from Japan tend to be conservative in what they tell Apple they can deliver, which stands in contrast to the lofty promises made by GT Advanced Technology.

Still, Apple has a reputation for being difficult, with supply chain managers who are constantly looking to squeeze costs. Many of those managers are said to be former supplier employees, so they are extremely familiar with the costs and margins of components and are notoriously tough in negotiations.



Apple's product cycles are also cyclical, with quick ramp-up of production for new products, only for shipments to slow considerably before next year's newest model. As a result, one unnamed supplier said they might not add capacity at the levels that Apple wants, for fear of incurring too great a cost.

"For example, Apple might want us to increase 100 production lines, but we would only add 50 to 60 gradually," one anonymous supply chain manager told the Journal.

For its part, GT Advanced characterized its contract with Apple as "oppressive and burdensome," and suggested that the iPhone maker squeezed the small supplier into an unmanageable contract to provide scratch-resistant sapphire material. But longtime suppliers who have watched the collapse of GT Advanced have not portrayed Apple as so villainous.

In court filings, Apple has said it "bent over backwards" to help GT Advanced, in hopes that its Mesa, Ariz., facility would eventually begin to produce usable sapphire in sufficient quantities. Apple told the bankruptcy court that it continued to make payments to its former partner even though it failed to meet performance milestones.
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Comments

  • Reply 1 of 45
    mpantonempantone Posts: 1,360member
    Duh, what else would they say?

    They want to appear smart, not stupid like GT Advanced.
  • Reply 2 of 45

    Sounds like embarrassing statements they are making. Novices, it sounds like. If their claims are not true, and they do not, then they are wasting their breaths by making these claims.

     

    Sure, Apple is tough, but they wouldn't be so tough that no one would work with them. 

  • Reply 3 of 45
    malaxmalax Posts: 1,598member
    I think those amateurs at GTAT have lost the war of public opinion and are just digging themselves into a deeper and deeper hole. "We were pushovers and go suckered into agreeing to terms were weren't competent to meet" isn't a great defense/excuse. I think that only works for college dropouts when their first venture fails.
  • Reply 4 of 45

    This really isn't that unusual for a relationship between suppliers and big companies. Most big industries place a lot of trust in small component suppliers, and expect those guys to deliver.

     

    GTAT should have just been happy (and Apple shareholders should BE happy) that Apple had a plan-B and was willing to wait until the iPhone 6S (or later) to get the sapphire screens.

  • Reply 5 of 45
    rogifanrogifan Posts: 10,669member
    Unnamed sources from Apple suppliers. Why should I believe one word of this article? Let's not forget it was the WSJ that ran that nasty story right before earnings release about Apple cutting orders for iPhone 5 parts due to "weak demand". I don't trust any reporting WSJ does about Apple.

    http://online.wsj.com/articles/SB10001424127887323596204578240440691304344
  • Reply 6 of 45
    bageljoeybageljoey Posts: 1,752member
    mpantone wrote: »
    Duh, what else would they say?

    They want to appear smart, not stupid like GT Advanced.
    That would make sense if they weren't speaking in condition of anonymity. Only Pegatron was willing to go on record--the other suppliers could say what they believed without fear of reprisal or public humiliation.
  • Reply 7 of 45
    mpantonempantone Posts: 1,360member
    Quote:
    Originally Posted by Rogifan View Post



    Unnamed sources from Apple suppliers. Why should I believe one word of this article? Let's not forget it was the WSJ that ran that nasty story right before earnings release about Apple cutting orders for iPhone 5 parts due to "weak demand". I don't trust any reporting WSJ does about Apple.



    http://online.wsj.com/articles/SB10001424127887323596204578240440691304344



    People speak off the record all the time. And not just companies related to Apple, Inc. People in sports, politics, entertainment, hospitality, medicine, law enforcement, business, religion, military, basket weaving, whatever.

     

    Have you just started reading news sites? (As opposed to tech rumor blogs?)

     

    Moreover, the Wall Street Journal is one of the most reputable periodicals on the planet. If your opinion of the WSJ is so low, I don't see how you could even bear reading a single word at tech rumor mills like AppleInsider, MacRumors, Cnet, et cetera without breaking into uncontrollable hysterics.

  • Reply 8 of 45
    Gutierrez planned to get rich fast all along.....he is laughing and having naked babes beside him right now.....
  • Reply 9 of 45
    malaxmalax Posts: 1,598member
    Quote:

    Originally Posted by Bageljoey View Post





    That would make sense if they weren't speaking in condition of anonymity. Only Pegatron was willing to go on record--the other suppliers could say what they believed without fear of reprisal or public humiliation.

    Exactly.  If other vendors felt mistreated by Apple, they would jump at this chance to, anonymous, jump on the GTAT bandwagon.  And the press would love that story.  So in this case silence speak volumes.

  • Reply 10 of 45
    asciiascii Posts: 5,941member

    When you're making a product with 100 parts, if only one of those parts is not delivered on time the whole production line stops. You have to be strict and only deal with people who don't over-promise and can in fact deliver.

  • Reply 11 of 45
    mpantonempantone Posts: 1,360member
    Quote:
    Originally Posted by malax View Post

     

    Exactly.  If other vendors felt mistreated by Apple, they would jump at this chance to, anonymous, jump on the GTAT bandwagon.  And the press would love that story.  So in this case silence speak volumes.


    That would end any potential future business with Apple.

     

    Also, other companies might hesitate to do business with a bunch of whiners and litigation-happy suppliers.

     

    So no, silence doesn't say anything in this case.

     

    If you don't like Apple, don't do business with them. It's the same as Microsoft, General Motors, AIG, or the pizzeria down the street. You don't need to bad mouth everything you don't like.

     

    There's no Yelp for the supply chain. Actually, one could probably use Yelp to complain about a part supplier, but big business isn't that moronic.

  • Reply 12 of 45
    That is the exact reverse as to the whispers about it all prior.

    Those whispers said that suppliers would even touch any proposed Apple deal with a barge pole.
  • Reply 13 of 45
    rogifanrogifan Posts: 10,669member
    mpantone wrote: »

    People speak off the record all the time. And not just companies related to Apple, Inc. People in sports, politics, entertainment, hospitality, medicine, law enforcement, business, religion, military, basket weaving, whatever.

    Have you just started reading news sites? (As opposed to tech rumor blogs?)

    Moreover, the Wall Street Journal is one of the most reputable periodicals on the planet. If your opinion of the WSJ is so low, I don't see how you could even bear reading a single word at tech rumor mills like AppleInsider, MacRumors, Cnet, et cetera without breaking into uncontrollable hysterics.

    WSJ has zero credibility when it comes to Apple in my book. Plus I know when I'm coming to sites like this what to expect. Apple stock was trading at around $520 when that WSJ iPhone 5 order cuts hit the front page. After, the stock was trading at around $485 and went down from there.
  • Reply 14 of 45
    dachardachar Posts: 330member
    These comments from some suppliers identify an unhealthy issue of excess demand for new iPhone every September with manufacturers being unable to keep up with demand. It seems that the peaks are getting bigger every year. If true, the difference between excess demand and lower demand are getting bigger. This is both an inefficient use of manufacturing and human resources and over stressed supply at other times.
  • Reply 15 of 45
    Quote:

    Originally Posted by Dachar View Post



    These comments from some suppliers identify an unhealthy issue of excess demand for new iPhone every September with manufacturers being unable to keep up with demand. It seems that the peaks are getting bigger every year. If true, the difference between excess demand and lower demand are getting bigger. This is both an inefficient use of manufacturing and human resources and over stressed supply at other times.



    It's going to be an issue that requires addressing. Apple's success is beginning to expose a lot of flaws in the supply-side of the economy. They've been working on some of them, like building factories in Brazil (probably not the best idea given the union issues that popped up), but a lot of companies are going to have to make a lot of capital expenditures to get things moving more efficiently.

     

    I'd also love if Apple went away from launching everything in September/October.

  • Reply 16 of 45
    normmnormm Posts: 548member
    Quote:

    Originally Posted by Dachar View Post



    These comments from some suppliers identify an unhealthy issue of excess demand for new iPhone every September with manufacturers being unable to keep up with demand. It seems that the peaks are getting bigger every year. If true, the difference between excess demand and lower demand are getting bigger. This is both an inefficient use of manufacturing and human resources and over stressed supply at other times.



    This is why Apple uses outside manufacturers: what would they do with excess capacity at low points in their cycle?  The outside manufacturers can sell their extra capacity to other companies.

  • Reply 17 of 45
    malaxmalax Posts: 1,598member
    Quote:

    Originally Posted by mpantone View Post

     

    That would end any potential future business with Apple.

     

    Also, other companies might hesitate to do business with a bunch of whiners and litigation-happy suppliers.

     

    So no, silence doesn't say anything in this case.

     

    If you don't like Apple, don't do business with them. It's the same as Microsoft, General Motors, AIG, or the pizzeria down the street. You don't need to bad mouth everything you don't like.

     

    There's no Yelp for the supply chain. Actually, one could probably use Yelp to complain about a part supplier, but big business isn't that moronic.


    I don't think you understand the meaning of the word "anonymously."  If most of Apple's suppliers felt as GTAT did, word would get out.  In fact, it appears that GTAT management simply isn't ready to play in the big leagues.  They remind me of a little leaguer complaining about a coach that makes them practice their fundamentals; at every higher level the players take that for granted and look at those complaints as childish.

  • Reply 18 of 45
    Quote:

    Originally Posted by mpantone View Post

     

    Moreover, the Wall Street Journal is one of the most reputable periodicals on the planet. If your opinion of the WSJ is so low, I don't see how you could even bear reading a single word at tech rumor mills like AppleInsider, MacRumors, Cnet, et cetera without breaking into uncontrollable hysterics.


    the wsj & nyt are fucking jokes and have no credibility. they lost it in 2000 when they chose fear over truth.

  • Reply 19 of 45
    mpantonempantone Posts: 1,360member
    Quote:

    Originally Posted by Rogifan View Post



    WSJ has zero credibility when it comes to Apple in my book. Plus I know when I'm coming to sites like this what to expect. Apple stock was trading at around $520 when that WSJ iPhone 5 order cuts hit the front page. After, the stock was trading at around $485 and went down from there.

    The WSJ doesn't control the market. If they publish something and the stock does something you don't like, you can't lay the blame exclusively on the WSJ.

     

    Concerning Apple rumors, the WSJ has a better track record than any other mainstream publication. Maybe the NY Times is close, and that's because both publications are on Apple's short list for being spoon fed from Apple PR (for years it was Mossberg/WSJ, Pogue/NYT).

  • Reply 20 of 45
    Quote:

    Originally Posted by mpantone View Post



    Duh, what else would they say?



    They want to appear smart, not stupid like GT Advanced.



    They ARE SMART.  

    They are not stupid like GT Advanced.

    They also did not sell stocks before announcing bankruptcy like GT Advanced's executives. Thieves.

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