I think you might be too charitable. The timing of stock sales from senior execs at GTA are very suspicious. This could be a situation where Apple got scammed. If so, that's pretty embarrassing for Apple. As a stockholder, I'd almost prefer that the story was Apple being a big meanie, rather than Apple being scammed...
I don't think it was a scam at all. If that's the case then it makes Tim Cook look like he doesn't know what he is doing.
I think it was a company that over reached its ability and Apple was slightly naive for believing that the company could achieve the necessary goals with the right amount of cash. Obviously there were hurdles that everyone overlooked.
If this was an outright scam then these guys wouldn't be giving Apple back the money and Apple wouldn't be giving them a deal on rent.
Just thinking out loud here. Is it possible that Apple realized that sapphire was not going to work (any time soon, at least) for larger screens like phones? If that were the case, Apple could be relatively pleased that they have an out here. A little trash talk and some free rent is worth a lot less than the cash they will be getting back. And we have no idea how much product they stockpiled in the process--they might have all they need for a while...
Bingo. A good contract is one that you can get out of. It is so obvious that Apple fucked GTAT and its creditors. It just blows my mind that everyone is crying a river for Apple. What we don't know is how much GTAT deserved it. That's hard to say. Apple has always played hardball with its suppliers. My guess is GTAT screwed up enough that Apple figured it could "get away with putting them in bankruptcy." Apple knows that putting a supplier into bankruptcy has the potential to damage its future negotiations with existing and new suppliers. Since Apple has never done anything like this before (at least not on this scale), they will most likely get the benefit of the doubt. We may never know who the real culprit was. Most likely they were both culpable.
As for me, I'm just glad I own Apple shares and not GTAT.
<p style="margin-bottom:11pt;margin-right:22pt;margin-top:11pt;"><span id="user_docs-internal-guid-935ca072-34ed-5c9e-09c3-c743df181b4c"><span style="color:rgb(51,51,51);vertical-align:baseline;">Kudos to GTAT for standing up to Apple and its "oppressive and burdensome" agreement!</span>
</span></p>
<span style="color:rgb(51,51,51);vertical-align:baseline;">I hope GTAT can focus their energies on their primary business, sapphire equipment supplier, and bring their stock back to $8+ (where it was before signing the money losing agreement with Apple).</span>
I don't buy that argument for one second. If I go buy a car, and the dealership talks me into a new ride with a $1,000/month payment that I can't afford, that's on me. It's my own responsibility to determine what kind of lifestyle is possible given my income, time and circumstances. If I'm concerned I can't meet the obligation, I could've walked before signing.
The sapphire deal, in concept, is no different. However 'oppressive and burdensome' the agreement was, it was something GT agreed to. It's one thing to call a threat or blackmail oppressive, but a deal that two parties settle on by their own will is theoretically equal.
It really looks like Apple will get the short end of the stick here. And it seems likely they're ready to cut their losses now and move on, potentially to a better partner.
First, GTAT was getting the short end of the stick and now the tables have turned.
There is more to the settlement than what Phillip Elmer-Dewitt tweeted.
Quote:
Originally Posted by quinney
They will probably have to do it without ever getting payment in advance. Who would trust them after this performance? Where will they get financing? Looks bleak from here.
"The deal would allow the Merrimack-based company to keep and sell some 2,036 furnaces it installed at a facility in Arizona and give the technology giant an undisclosed percentage the furnaces sale to pay off some $439 million of its secured loan on the equipment."
"Apple also will help the company obtain $150 million in financing and not charge rent for the Arizona plant while the facility’s liquidation continues over the course of a year."
I don't think it was a scam at all. If that's the case then it makes Tim Cook look like he doesn't know what he is doing.
I think it was a company that over reached its ability and Apple was slightly naive for believing that the company could achieve the necessary goals with the right amount of cash. Obviously there were hurdles that everyone overlooked.
If this was an outright scam then these guys wouldn't be giving Apple back the money and Apple wouldn't be giving them a deal on rent.
Bageljoey never said it was a scam. He's saying Apple may have decided sapphire wasn't going to work on iPhones and used the terms of the contract to get out of it and let GTAT take the fall. That's not a scam. Its a business decision. Circumstances changed and Apple took advantage of its contract position. If you know anything about contract law, you would see this is the most likely scenario. I find it very unlikely that Tim Cook was "naive" about GTAT or that GTAT just didn't have the right people or resources to make it happen.
There are many other possibilities that are more likely than Apple just being stupid. For instance, maybe GTAT missed a performance date and Apple bankrupted them so they could take over the plant. Apple owns the building and could easily buy the furnaces for $0.10 on the dollar or partner with someone to do it. It will be interesting to see if Apple puts sapphire screens from Arizona on its iPhone 6S (the "s" stands for Sapphire).
Bingo. A good contract is one that you can get out of. It is so obvious that Apple fucked GTAT and its creditors. It just blows my mind that everyone is crying a river for Apple. What we don't know is how much GTAT deserved it. That's hard to say. Apple has always played hardball with its suppliers. My guess is GTAT screwed up enough that Apple figured it could "get away with putting them in bankruptcy." Apple knows that putting a supplier into bankruptcy has the potential to damage its future negotiations with existing and new suppliers. Since Apple has never done anything like this before (at least not on this scale), they will most likely get the benefit of the doubt. We may never know who the real culprit was. Most likely they were both culpable.
As for me, I'm just glad I own Apple shares and not GTAT.
GTAT did not get screwed. The CEO and other management made out like bandits (apt), and cashed out for big gains. AZ workers got the shaft while their bosses killed it. My bets are Apple had other suppliers besides GTAT in their sites when they chose GTAT. With GTAT dead, the alternatives will line up. Behind the scenes, Apple might be able to argue, and likely rightfully, that they have no choice but to outsource to China since the Chinese know how to get things done. My bets are a Chinese company will suddenly appear to buy the furnaces and produce the sapphire Apple needs.
It's easy to get out of any contract when one party doesn’t hold up its end.
Yes, but what you haven't asked yourself is how material was their breach. For example, what if Apple asked for 100,000 displays by June 1 and GTAT didn't deliver the 100,000 until June 3. Normally a company would just let that go. If Apple changed its mind on sapphire displays for iPhone 6, it may have looked for an out even though GTAT was performing well in most regards.
I'm not defending GTAT or criticizing Apple. I'm just saying that Apple was in control and screwed GTAT. The only thing we don't know is whether GTAT deserved it.
GTAT did not get screwed. The CEO and other management made out like bandits (apt), and cashed out for big gains. AZ workers got the shaft while their bosses killed it. My bets are Apple had other suppliers besides GTAT in their sites when they chose GTAT. With GTAT dead, the alternatives will line up. Behind the scenes, Apple might be able to argue, and likely rightfully, that they have no choice but to outsource to China since the Chinese know how to get things done. My bets are a Chinese company will suddenly appear to buy the furnaces and produce the sapphire Apple needs.
You must not understand corporations. GTAT is a completely different entity than the CEO. If anything, GTAT got screwed by its CEO. Of course, that was GTAT's fault. They obviously shouldn't have compensated their CEO before he delivered. The workers are at will employees. They didn't get screwed. They may have even got severance. The people that got screwed were the shareholders and creditors of GTAT.
You could be right about a Chinese supplier buying the furnaces. The only reason I can see to do that is if Apple doesn't have rights to GTAT patents and it can avoid IP by going to China. More likely is that Apple already has rights to use GTAT technology. I suspect GTAT's failure to perform gave Apple the right to have sapphire produced by someone else (fairly common terms in a supplier agreement). Apple owns the building in AZ and already has the project permitted. Why not just fire that baby up in six months and produce sapphire for the iPhone 6S.
You could be right about a Chinese supplier buying the furnaces. The only reason I can see to do that is if Apple doesn't have rights to GTAT patents and it can avoid IP by going to China. More likely is that Apple already has rights to use GTAT technology. I suspect GTAT's failure to perform gave Apple the right to have sapphire produced by someone else (fairly common terms in a supplier agreement). Apple owns the building in AZ and already has the project permitted. Why not just fire that baby up in six months and produce sapphire for the iPhone 6S.
If GTAT can't meet it's obligations shouldn't they be required to sell off not just the furnaces but other assets including their IP as well?
Apple is not turning the other cheek. They forced a supplier into bankruptcy. Apple is in total control here. They own the factory in Arizona. Who do you think is going to be buying 2,000 furnaces at $.10 on the dollar? My guess is those 2,000 furnaces aren't going anywhere. The entity that buys them will be producing sapphire for Apple under even more favorable terms for Apple.
All I can say is Apple is awesome. They get to set whatever terms they want in their agreements and if they decide to **** a supplier, the media feels sorry for Apple. That is an enviable position. And no, I'm not being sarcastic. I really admire Apple's business acumen. And make no mistake, I'm not suggesting Apple did anything wrong. I'm sure Apple had a good reason to do what it did.
I thought the Reality Distortion Field died with Steve.
GTAT is in more control than Apple. GTAT got their wish, and some, which was to break the agreement with Apple.
Apple does not own the factory in Arizona. It is in Apple's best interest to see that the furnaces are sold for top dollar, not 10¢ on the dollar.
Apple won't get their money back until the furnaces are sold.That does not sound like an enviable position to be in.
"Under the proposed accord, GT Advanced will retain intellectual property rights and will not make any claims against Apple. The company will retain the furnaces from its Mesa, Arizona, sapphire operations and be free to sell them to anyone. Apple will have a $439 million claim against the furnaces and will be paid solely through the furnace sales, Despins said. No other claims will be made by Apple."
Kudos to GTAT for standing up to Apple and its "oppressive and burdensome" agreement!
I hope GTAT can focus their energies on their primary business, sapphire equipment supplier, and bring their stock back to $8+ (where it was before signing the money losing agreement with Apple).
they (gtat) agreed to the terms. it's why they call it an agreement.
they over-promised and seriously under-delivered. period.
Bingo. A good contract is one that you can get out of. It is so obvious that Apple fucked GTAT and its creditors. It just blows my mind that everyone is crying a river for Apple. What we don't know is how much GTAT deserved it. That's hard to say. Apple has always played hardball with its suppliers. My guess is GTAT screwed up enough that Apple figured it could "get away with putting them in bankruptcy." Apple knows that putting a supplier into bankruptcy has the potential to damage its future negotiations with existing and new suppliers. Since Apple has never done anything like this before (at least not on this scale), they will most likely get the benefit of the doubt. We may never know who the real culprit was. Most likely they were both culpable.
As for me, I'm just glad I own Apple shares and not GTAT.
gtat didn't have to sign—good or bad contract—they could have just said no.
We are working with GTAT here in Arizona. Not only do I feel bad for the people who are losing their jobs but also the smaller companies that are now on hold for payment for tens of thousands of dollars. The ripple effect is in full force here. We have to just sit back and wait until the pissing contest is over to get paid. It's crazy.
Comments
I think you might be too charitable. The timing of stock sales from senior execs at GTA are very suspicious. This could be a situation where Apple got scammed. If so, that's pretty embarrassing for Apple. As a stockholder, I'd almost prefer that the story was Apple being a big meanie, rather than Apple being scammed...
I don't think it was a scam at all. If that's the case then it makes Tim Cook look like he doesn't know what he is doing.
I think it was a company that over reached its ability and Apple was slightly naive for believing that the company could achieve the necessary goals with the right amount of cash. Obviously there were hurdles that everyone overlooked.
If this was an outright scam then these guys wouldn't be giving Apple back the money and Apple wouldn't be giving them a deal on rent.
Here's a photo of one.
Just thinking out loud here. Is it possible that Apple realized that sapphire was not going to work (any time soon, at least) for larger screens like phones? If that were the case, Apple could be relatively pleased that they have an out here. A little trash talk and some free rent is worth a lot less than the cash they will be getting back. And we have no idea how much product they stockpiled in the process--they might have all they need for a while...
Bingo. A good contract is one that you can get out of. It is so obvious that Apple fucked GTAT and its creditors. It just blows my mind that everyone is crying a river for Apple. What we don't know is how much GTAT deserved it. That's hard to say. Apple has always played hardball with its suppliers. My guess is GTAT screwed up enough that Apple figured it could "get away with putting them in bankruptcy." Apple knows that putting a supplier into bankruptcy has the potential to damage its future negotiations with existing and new suppliers. Since Apple has never done anything like this before (at least not on this scale), they will most likely get the benefit of the doubt. We may never know who the real culprit was. Most likely they were both culpable.
As for me, I'm just glad I own Apple shares and not GTAT.
I don't buy that argument for one second. If I go buy a car, and the dealership talks me into a new ride with a $1,000/month payment that I can't afford, that's on me. It's my own responsibility to determine what kind of lifestyle is possible given my income, time and circumstances. If I'm concerned I can't meet the obligation, I could've walked before signing.
The sapphire deal, in concept, is no different. However 'oppressive and burdensome' the agreement was, it was something GT agreed to. It's one thing to call a threat or blackmail oppressive, but a deal that two parties settle on by their own will is theoretically equal.
Wow.
It really looks like Apple will get the short end of the stick here. And it seems likely they're ready to cut their losses now and move on, potentially to a better partner.
First, GTAT was getting the short end of the stick and now the tables have turned.
There is more to the settlement than what Phillip Elmer-Dewitt tweeted.
They will probably have to do it without ever getting payment in advance. Who would trust them after this performance? Where will they get financing? Looks bleak from here.
"The deal would allow the Merrimack-based company to keep and sell some 2,036 furnaces it installed at a facility in Arizona and give the technology giant an undisclosed percentage the furnaces sale to pay off some $439 million of its secured loan on the equipment."
"Apple also will help the company obtain $150 million in financing and not charge rent for the Arizona plant while the facility’s liquidation continues over the course of a year."
http://www.nhbr.com/October-31-2014/GTAT-wants-to-lay-off-47-in-New-Hampshire/
It's easy to get out of any contract when one party doesn’t hold up its end.
I don't think it was a scam at all. If that's the case then it makes Tim Cook look like he doesn't know what he is doing.
I think it was a company that over reached its ability and Apple was slightly naive for believing that the company could achieve the necessary goals with the right amount of cash. Obviously there were hurdles that everyone overlooked.
If this was an outright scam then these guys wouldn't be giving Apple back the money and Apple wouldn't be giving them a deal on rent.
Bageljoey never said it was a scam. He's saying Apple may have decided sapphire wasn't going to work on iPhones and used the terms of the contract to get out of it and let GTAT take the fall. That's not a scam. Its a business decision. Circumstances changed and Apple took advantage of its contract position. If you know anything about contract law, you would see this is the most likely scenario. I find it very unlikely that Tim Cook was "naive" about GTAT or that GTAT just didn't have the right people or resources to make it happen.
There are many other possibilities that are more likely than Apple just being stupid. For instance, maybe GTAT missed a performance date and Apple bankrupted them so they could take over the plant. Apple owns the building and could easily buy the furnaces for $0.10 on the dollar or partner with someone to do it. It will be interesting to see if Apple puts sapphire screens from Arizona on its iPhone 6S (the "s" stands for Sapphire).
Bingo. A good contract is one that you can get out of. It is so obvious that Apple fucked GTAT and its creditors. It just blows my mind that everyone is crying a river for Apple. What we don't know is how much GTAT deserved it. That's hard to say. Apple has always played hardball with its suppliers. My guess is GTAT screwed up enough that Apple figured it could "get away with putting them in bankruptcy." Apple knows that putting a supplier into bankruptcy has the potential to damage its future negotiations with existing and new suppliers. Since Apple has never done anything like this before (at least not on this scale), they will most likely get the benefit of the doubt. We may never know who the real culprit was. Most likely they were both culpable.
As for me, I'm just glad I own Apple shares and not GTAT.
GTAT did not get screwed. The CEO and other management made out like bandits (apt), and cashed out for big gains. AZ workers got the shaft while their bosses killed it. My bets are Apple had other suppliers besides GTAT in their sites when they chose GTAT. With GTAT dead, the alternatives will line up. Behind the scenes, Apple might be able to argue, and likely rightfully, that they have no choice but to outsource to China since the Chinese know how to get things done. My bets are a Chinese company will suddenly appear to buy the furnaces and produce the sapphire Apple needs.
It's easy to get out of any contract when one party doesn’t hold up its end.
Yes, but what you haven't asked yourself is how material was their breach. For example, what if Apple asked for 100,000 displays by June 1 and GTAT didn't deliver the 100,000 until June 3. Normally a company would just let that go. If Apple changed its mind on sapphire displays for iPhone 6, it may have looked for an out even though GTAT was performing well in most regards.
I'm not defending GTAT or criticizing Apple. I'm just saying that Apple was in control and screwed GTAT. The only thing we don't know is whether GTAT deserved it.
GTAT did not get screwed. The CEO and other management made out like bandits (apt), and cashed out for big gains. AZ workers got the shaft while their bosses killed it. My bets are Apple had other suppliers besides GTAT in their sites when they chose GTAT. With GTAT dead, the alternatives will line up. Behind the scenes, Apple might be able to argue, and likely rightfully, that they have no choice but to outsource to China since the Chinese know how to get things done. My bets are a Chinese company will suddenly appear to buy the furnaces and produce the sapphire Apple needs.
You must not understand corporations. GTAT is a completely different entity than the CEO. If anything, GTAT got screwed by its CEO. Of course, that was GTAT's fault. They obviously shouldn't have compensated their CEO before he delivered. The workers are at will employees. They didn't get screwed. They may have even got severance. The people that got screwed were the shareholders and creditors of GTAT.
You could be right about a Chinese supplier buying the furnaces. The only reason I can see to do that is if Apple doesn't have rights to GTAT patents and it can avoid IP by going to China. More likely is that Apple already has rights to use GTAT technology. I suspect GTAT's failure to perform gave Apple the right to have sapphire produced by someone else (fairly common terms in a supplier agreement). Apple owns the building in AZ and already has the project permitted. Why not just fire that baby up in six months and produce sapphire for the iPhone 6S.
You could be right about a Chinese supplier buying the furnaces. The only reason I can see to do that is if Apple doesn't have rights to GTAT patents and it can avoid IP by going to China. More likely is that Apple already has rights to use GTAT technology. I suspect GTAT's failure to perform gave Apple the right to have sapphire produced by someone else (fairly common terms in a supplier agreement). Apple owns the building in AZ and already has the project permitted. Why not just fire that baby up in six months and produce sapphire for the iPhone 6S.
If GTAT can't meet it's obligations shouldn't they be required to sell off not just the furnaces but other assets including their IP as well?
Apple is not turning the other cheek. They forced a supplier into bankruptcy. Apple is in total control here. They own the factory in Arizona. Who do you think is going to be buying 2,000 furnaces at $.10 on the dollar? My guess is those 2,000 furnaces aren't going anywhere. The entity that buys them will be producing sapphire for Apple under even more favorable terms for Apple.
All I can say is Apple is awesome. They get to set whatever terms they want in their agreements and if they decide to **** a supplier, the media feels sorry for Apple. That is an enviable position. And no, I'm not being sarcastic. I really admire Apple's business acumen. And make no mistake, I'm not suggesting Apple did anything wrong. I'm sure Apple had a good reason to do what it did.
I thought the Reality Distortion Field died with Steve.
GTAT is in more control than Apple. GTAT got their wish, and some, which was to break the agreement with Apple.
Apple does not own the factory in Arizona. It is in Apple's best interest to see that the furnaces are sold for top dollar, not 10¢ on the dollar.
Apple won't get their money back until the furnaces are sold. That does not sound like an enviable position to be in.
"Under the proposed accord, GT Advanced will retain intellectual property rights and will not make any claims against Apple. The company will retain the furnaces from its Mesa, Arizona, sapphire operations and be free to sell them to anyone. Apple will have a $439 million claim against the furnaces and will be paid solely through the furnace sales, Despins said. No other claims will be made by Apple."
http://www.bloomberg.com/news/2014-10-21/gt-advanced-allowed-to-wind-down-after-deal-with-apple.html
Kudos to GTAT for standing up to Apple and its "oppressive and burdensome" agreement!
I hope GTAT can focus their energies on their primary business, sapphire equipment supplier, and bring their stock back to $8+ (where it was before signing the money losing agreement with Apple).
they (gtat) agreed to the terms. it's why they call it an agreement.
they over-promised and seriously under-delivered. period.
Bingo. A good contract is one that you can get out of. It is so obvious that Apple fucked GTAT and its creditors. It just blows my mind that everyone is crying a river for Apple. What we don't know is how much GTAT deserved it. That's hard to say. Apple has always played hardball with its suppliers. My guess is GTAT screwed up enough that Apple figured it could "get away with putting them in bankruptcy." Apple knows that putting a supplier into bankruptcy has the potential to damage its future negotiations with existing and new suppliers. Since Apple has never done anything like this before (at least not on this scale), they will most likely get the benefit of the doubt. We may never know who the real culprit was. Most likely they were both culpable.
As for me, I'm just glad I own Apple shares and not GTAT.
gtat didn't have to sign—good or bad contract—they could have just said no.
Bageljoey never said it was a scam.
I don't ever remember discussing this with Bageljoey.
If GTAT can't meet it's obligations shouldn't they be required to sell off not just the furnaces but other assets including their IP as well?
Not necessarily. Depends on the deal set up to reorganize.
Obviously Apple accepted this deal.
See for yourself.
they (gtat) agreed to the terms. it's why they call it an agreement.
they over-promised and seriously under-delivered. period.
If it was that simple, GTAT would have to cough up $439 million asap.
Instead,
1) Apple doesn't get their money back until the ovens get sold
2) Apple is allowing GTAT to stay in the building rent free for a year
3) Apple will help GTAT obtain $150 million in financing
4) GT gets to retain intellectual property rights
GTAT essentially made the agreement null and void.