Apple reportedly withheld $139M payment to GT Advanced ahead of bankruptcy filing

Posted:
in AAPL Investors edited October 2014
As new information about GT Advanced Technologies' dire financial straits slowly comes to light, a report on Tuesday claims Apple held back a $139 million loan installment from its partner sapphire supplier for unknown reasons, possibly leading to the firm's filing for Chapter 11 protection.

MesaGT Advanced Technologies' sapphire plant in Mesa, Ariz.


According to The Wall Street Journal, Apple was due to pay GT Advanced a final $139 million advance of a promised $578 million contract, but reportedly refused due to unknown circumstances.

Speculation points to GT's cash on hand, which stood at only $85 million as of Sept. 29, days before the company filed for bankruptcy protection on Monday. The figure is well below a $125 million threshold that would contractually allow Apple to recoup the approximately $440 million already advanced to GT in support of ramping up sapphire production at a dedicated factory in Mesa, Ariz.

Apple's reasoning may be unclear at this time, but more details are expected to surface as GT's bankruptcy process progresses in the coming weeks.

Prior to Apple's unveiling of the iPhone 6 and iPhone 6 Plus, multiple market analysts were confident that sapphire material sourced from GT Advanced would be used for the handsets' cover screens. Predictions turned out to be overzealous as the iPhone 6 and 6 Plus feature ion-strengthened aluminosilicate glass, better known as Corning's Gorilla Glass brand.

Earlier today, it was learned that GT Advanced CEO Tom Gutierrez offloaded $160,000 worth of company stock just ahead of Apple's iPhone 6 announcement, though the firm claims the selloff was planned. Filings show Gutierrez did not sell any GTAT shares in 2013, but this year sold almost 70,000 units worth some $10 million.

It was revealed in November of last year that GT Advanced won a $578 million deal to supply sapphire material to Apple for use in unannounced products. At the time, Apple's use of sapphire was restricted to protective covers for the iPhone's rear-facing camera and Touch ID fingerprint reader. The company announced expanded deployment in upcoming Apple Watch models bound for release in early 2015.

Comments

  • Reply 1 of 11
    hentaiboyhentaiboy Posts: 1,244member
    Quote:

    Originally Posted by AppleInsider View Post



    ...though the firm claims the selloff was planned.

    Riiiiight

  • Reply 2 of 11
    Tim isn't dumb. My guess is they discovered some kind of shenanigans and realized the company was going under.
  • Reply 3 of 11
    spuditspudit Posts: 49member
    Quote:
    Originally Posted by TheWhiteFalcon View Post



    Tim isn't dumb. My guess is they discovered some kind of shenanigans and realized the company was going under.

     

    Who knows what the details were for the original agreement on the $578 Million.   It seems just as likely that GT was not able to meet commitments for the full amount.

  • Reply 4 of 11
    unicronunicron Posts: 154member
    " The company announced expanded deployment in upcoming Apple Watch models bound for release in early 2015."

    Was this before Apple announced it?? That would spell instant doom as an Apple vendor.
  • Reply 5 of 11
    ash471ash471 Posts: 705member
    Quote:

    Originally Posted by hentaiboy View Post

     

    Riiiiight


    Why the sarcasm.  He sold 10 million in stock this year using SEC rule 10b5-1.  This sale was planned six months ago....well before Apple pulled the plug.

  • Reply 6 of 11
    ash471ash471 Posts: 705member
    Quote:
    Originally Posted by TheWhiteFalcon View Post



    Tim isn't dumb. My guess is they discovered some kind of shenanigans and realized the company was going under.

    Why the sinister view? It is almost certain that the contract had a performance clause related to quality and GT didn't meet it.  Apple decided not to put sapphire on their phones and didn't make their last payment. GT has a bunch of contracts to install equipment for product that it can't sell and filed bankruptcy.  Pretty obvious how this happened.

  • Reply 7 of 11
    ash471ash471 Posts: 705member
    Quote:

    Originally Posted by spudit View Post

     

     

    Who knows what the details were for the original agreement on the $578 Million.   It seems just as likely that GT was not able to meet commitments for the full amount.


    Apple probably set a really high bar for quality and GT couldn't meet it. They are probably able to product sufficient screens, just not ones that pass Apple's quality requirements. Sucks to be them (or their equipment suppliers).

  • Reply 8 of 11
    mubailimubaili Posts: 444member
    Does Apple have a second source for sapphire? Would the camera cover and TouchID cover affected? I hope Apple is not backed into a corner just like years ago with the SoC solely manufactured by Samsung.
  • Reply 9 of 11
    kibitzerkibitzer Posts: 1,114member
    Quote:

    Originally Posted by ash471 View Post

     

    Why the sinister view? It is almost certain that the contract had a performance clause related to quality and GT didn't meet it.  Apple decided not to put sapphire on their phones and didn't make their last payment. GT has a bunch of contracts to install equipment for product that it can't sell and filed bankruptcy.  Pretty obvious how this happened.




    Or looking at this from a similar but slightly different angle, Apple may have realized realized that the cash it had already given GT wasn't going to pay off. It's trite but true in that case: Why throw good money after bad?

  • Reply 10 of 11
    philboogiephilboogie Posts: 7,671member
    And there's always a different angle: "Assumptions is the mother of all fuckups"
  • Reply 11 of 11
    mde24mde24 Posts: 27member
    The sapphire furnaces have been built, there will be minimal economic value in dismantling them, so they will remain intact. With advanced manufacturing plant, the primary cost is in the plant itself: running it is relatively cheap. So, with the capital cost of the plant written down as part of the Ch11 the marginal costs and risks of running it when there is a known customer with mountains of cash are pretty low and therefore it can be operated profitably.

    That's all that Apple cares about. Whether the owner is a continuation-GTAT, a management buyout or a new management team installed by the creditors, the operation of the company and its plant will continue and Apple will get their sapphire bits. The biggest concern for Apple is that this process will lead to delays in production, I'm sure that both GTAT and its creditors will be keen for production to be started/resumed as quickly as possible to minimise additional losses.
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