While lawyers for bankrupt sapphire supplier GT Advanced confirmed previously that it had reached an agreement to repay Apple approximately $439 million, many details regarding what exactly went wrong in the partnership had not been disclosed publicly. Today we get what might be the clearest explanation yet of what happened between the two companies leading up to GTAT filing for Chapter 11 bankruptcy last month. In a declaration filed by COO of GT Advanced Daniel Squiller with the courts yesterday (via Fortune), the company outlines previously sealed info regarding its deal with Apple and terms of the deal that lead to GT’s bankruptcy filing.
When GTAT initially entered into negotiations to sell sapphire furnaces to Apple, it had no sense that, having borrowed hundreds of millions of dollars to pay for the components of more than 2,036 sapphire furnaces, it would end up being unable to meet its cost and production targets for reasons that it believes were beyond its control as well as unforeseen difficulties in scaling its technology to 262kg boules to meet evolving product specifications.
While noting that the deal was “an ambitious transaction for the production of sapphire in quantities, size and quality never before achieved,” the document reveals a number of strict terms Apple imposed in the deal that the company describes as limiting its ability to achieve Apple’s requirements for sapphire production. Here’s a few of the more interesting bits:
– 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. These problems and difficulties resulted in a liquidity crisis at GTAT, which led to the commencement of these chapter 11 cases
– Because GTAT’s facility in Salem Massachusetts (the “Salem Facility”) was exclusively dedicated to the sapphire growth project with Apple, GTAT was unable to use that facility for other revenue streams
-GTAT did not select the fabrication equipment. GTAT was unable to negotiate changes to the pricing regime set forth in the Apple Agreements, and, therefore, GTAT was selling sapphire material at a substantial loss. GTAT’s losses would have increased substantially in 2015 when the price for finished sapphire material was scheduled to decrease under the agreements with Apple.
– To date, GTAT has incurred approximately $900 million in costs in connection with the Apple project (of which $439 million was funded by the Apple prepayment), and, if the pricing set forth in the Apple Agreements could not be renegotiated, GTAT would never realize a profit.
The report also notes that GTAT executives reached out to Apple prior to filing for bankruptcy to request pricing changes and revised terms to avoid going broke. Apple, according to the document, didn’t respond with a proposal that would meet the company’s needs: “While Apple responded with various proposals, after intense negotiations, none of Apple’s proposals solved the economic issues in an effective manner, and GTAT believed that acceptance of such proposals would have exposed GTAT to further risk.”
Following announcements from lawyers that Apple and GT Advanced would be parting ways, Apple issued a statement saying it put a lot of effort into an ambitious new sapphire manufacturing process with GTAT which is not ready for production.” It also said it would “help the GT Advanced employees who will be impacted by this find new jobs” and continue evaluating the company’s sapphire production.
The full document is embedded below:
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