Following a court order that documents be unsealed regarding the ill-fated partnership between Apple and sapphire crystal glass maker GT Advanced, a number of interesting anecdotes surrounding the tumultuous relationship have been exposed. In an unedited affidavit, GT Advanced COO Daniel Squiller claimed that Apple used a classic “bait-and-switch” strategy to secure its deal with the now-bankrupt supplier.
Apple originally offered GT Advanced what appeared to be a lucrative deal for the supplier last fall, agreeing to purchase 2,600 furnaces to grow sapphire crystal glass for its future products — rumored to start with the iPhone 6.
The terms of the contract, however, changed significantly over time and eventually shifted all economic risk to GT Advanced and placed Apple under no obligation to purchase any sapphire glass from GT Advanced.
“In hindsight, it is unclear whether Apple ever intended to purchase any sapphire furnaces from GTAT. Indeed, after months of extensive negotiations over price and related terms, Apple demanded a fundamentally different deal: Apple no longer wanted to buy furnaces from GTAT; instead, Apple offered an arrangement that required GTAT to borrow money from Apple to purchase furnace components and assemble furnaces that would be used to grow sapphire for Apple. The new structure, as a contract matter, shifted all economic risk to GTAT, because Apple would act as a lender and would have no obligation to purchase any sapphire furnaces, nor did it have any obligation to purchase any sapphire material produced by GTAT. At the same time, Apple constrained GTAT from doing business with any other manufacturer in or supplier to the consumer electronics market, subject to extreme penalties—styled as “liquidated damages”—GTAT failed to meet any of Apple’s requirements.”
Ultimately, GT Advanced recognized the potential problems with this new deal and was told by Apple to “put on your big boy pants and accept the agreement” like other suppliers the iPhone maker works with.
“When GTAT’s management expressed obvious concerns to Apple regarding the deal terms during the contract negotiations, Apple responded that similar terms are required for other Apple suppliers and that GTAT should: ‘Put on your big boy pants and accept the agreement’,” wrote Squiller.
The full-length affidavit goes on to reveal in more detail about how Apple was very controlling over GT Advanced, resulting in the partnership not being profitable:
“Even if this business transaction worked exactly as contemplated in the original agreements, GTAT would not earn any income at all unless Apple opted to ‘buy’ sapphire material in excess of loan ‘repayment’ obligations. By failing to compensate GTAT for losses associated with the development of the technology due to Apple’s constant interference over which GTAT had little or no control, including losses caused by Apple’s changes in product specifications, GTAT was forced into the role of a ‘captive’ supplier to Apple, bearing all of the risk and all of the cost, including the costs of more than 1,300 temporary and permanent personnel, utilities, insurance, repairs, and raw materials. Indeed, the total cost incurred by GTAT pursuant to the project with Apple has so far amounted to approximately $900 million.”
The full-length affidavit filed with the U.S. Bankruptcy Court for the District of New Hampshire is embedded below:
The unsealed confidentiality agreement between Apple and GT Advanced also reaffirms the strict measures that Apple takes to prevent leaked information:
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So they are claiming they got shamed into accepting a deal they thought wouldn’t work? Wow, this is the lamest excuse for a complete lack of intelligence I think I have heard.
Sounds like the senior management of GTAT wanted to become high rollers in the tech game, most likely because they knew what it would do to their share price. So they threw the company under the bus so they could profit.
I sincerely hope the SEC treats them as examples.
If you stop and read the article you can see how the contract was rearranged by apple in order to screw gtat step by step. Initially it was a good deal that required little intelligence to understand but seeing your profile pictures now i understand why you are so biased about it. Apple as you can see was cutting gtat other businesses to keep them just for them under poor terms without them being able to do much. This deal was being cooked for months. You think those terms just popped one day?
I don’t think it’s that cut and dry and you are a fool if you think it is. I am it seemed like the opportunity of a lifetime for these guys and it went sideways when the rules changed. You can’t blame them for jumping at the opportunity in the beginning. Just because it’s Apple doesn’t mean that they are going to play nice.
GT’s management should have been wise to this on the bait and switch and backed out of the deal. Being bullied into a bad deal isn’t Apple’s fault, that’s the way business works, you try to get the best deal for your company not theirs. Good management wouldn’t let something with such bad term enter their door unless they understood the risks and were willing to deal with it.
In this case it sounds like management was wowed with an opportunity but was too weak to say no and back out when the terms went south.
I think you are right in that the opportunity was too good to pass up but I am not sure from the tone of the documents that it would have been that was to back out. You say bait and switch but those aren’t easy to spot from the get go.
There is probably more to this than we know but to say that that’s the way business works is short sighted. The deal needs to be mutually beneficial. If not then you will constantly be looking for new partners which is expensive.
If they were scared of the contract why did they sign it? If the changed contract was worse, why did they accept the changes? Makes no sense to claim anything else.
Well, in any relationship both parties should end up in a win-win for both. If one of the parties is disadvantaged the relationship will not succeed. It would appear Apple lawyers were smarter than GT.
Well, I heard that GT Advanced wasn’t going to sign, but then Apple double dog dared them.
What was GT Advanced supposed to do in the face of such a challenge?
Best reply Ever hahahahaha!!
“Pray I don’t alter it any further.”
Haha Perfect :) Mike Knopp’s comment above is gold too.
Have to love some of the white knights in here rushing to defend Apple as if their intentions are always perfect and true.
Yes, I believe that this was totally Apple’s fault that GTA agreed to a production schedule that they couldn’t possibly meet. No question about it. This was entirely Apple’s fault (not).
Actually Apple should take some of the blame. They should have done a better assessment of gtat. There has to be more to this story than what we are hearing about here. Why would Apple want to put themselves in this position? They would want stable partners not this kind of nonsense.
That is, unless GTAT was a pawn – get Samsung and the rest to follow the McGuffin of sapphire phone displays thinking Apple had a trump card, when it was all really a bluff (because both GTAT and Apple knew it was a complete pipe-dream).
> Apple deal burdensome
> Apple doesn’t compromise
>GT Advanced seals the deal
Profit???
GTAT should try being a direct supplier to Boeing or Airbus, if you fail to meet their terms they own your first born and ultimately decide to manage your business for you.
So, yeah this was GTAT…strength on technology, overconfidence, greedy maybe and surely poor contract management.
Never ever let any customer be more than 25-20% of your business, even that is exceptionally large.
If the deal was bad they shouldn’t have gone for it. Clearly they got tunnel vision at the prospect of big financial gains by partnering with Apple, and in the process didn’t perform or action their risk assessments correctly.
Frankly it seems to be their oversight, and hearing how their executives were dumping stock 24 hours before the iPhone 6 unveiling leads me to suggest they have some pretty challenged people running the organisation who are happy to take stupid risks at the hope it leads to financial gain, despite setting themselves up for a world of hurt.
No one forces you to sign anything. If you don’t like the agreement, don’t sign it.
Some of the responses here that are along the lines of GTA was an idiot for signing, seem to be the exact kind of fools that themselves would sign such a thing. Apple reeled these suckers in like fish and used them. Was it legal? yes. Was it the right way to behave in inter-corporate negotiations? No, not at all.
It kind of reminds me of those that defend girls that have one night stands with celebrities. After the deed happens, they are all … “Well GTA shouldn’t have been wearing that skirt and was probably far too drunk. She should have called a cab and gone home if she didn’t want to get sleep with him.” Whereas GTA is all … “I thought we had a relationship!”
Clearly GTA should have walked away, but things aren’t that simple. Sometimes a girl gets stars in her eyes, and sometimes the celebrity is just taking advantage because they want to f*ck something.
Well Mr. Gray.