In a sudden and startling announcement, GT Advanced Technologies Inc., a developing supplier for new, more durable sapphire glass applications for Apple’s product lineup, announced today that it had commenced a voluntary filing under Chapter 11 of the Bankruptcy Code as a best means to reorganize and protect that company and provide a path to future success. In the announcement, GT indicated that as of September 29, 2014, the company had approximately $85 million in cash, but there is no mention in the release of current outstanding liabilities.
In early August in its announcement for fiscal year second quarter results, the company indicated six month, year-to-date revenues of $80.5 million including $49.7 million attributed to sapphire equipment and materials. Non-GAPP operating expenses were reported as $76.3 million year-to-date and the supplier incurred a $139 million net loss from operations. GT reported ending its second quarter with $333 million of cash, cash equivalents and restricted cash, compared to a $509 million at the end of the company’s first quarter.
A statement from this supplier’s CEO states:
“GT has a strong and fundamentally sound underlying business. Today’s filing does not mean we are going out of business; rather, it provides us with the opportunity to continue to execute our business plan on a stronger footing, maintain operations of our diversified business, and improve our balance sheet.”
The company indicated that it expects to provide additional details with respect to the Chapter 11 filing as soon as they are available.
Readers may recall that in our previous commentaries related to Apple’s ongoing efforts in product innovation, that Apple provided a long-term strategic seed investment in GT, valued in excess of $500 million, to develop a stronger more durable alternative to the use of gorilla glass for displays in Apple’s forthcoming line-up of products. GT invested in a 1.4 million square foot production facility near Mesa Arizona to produce sapphire at high volumes at comparative cost. There was further speculation that GT was being positioned as the prime supplier of sapphire for the iPhone line-up and the now announced Apple wearable watch scheduled to ship early next year. The recent iPhone 6 new product announcements from Apple did not include sapphire glass as a feature, leading to speculation that GT could not initially ramp to Apple’s high volume production requirements for its newest model.
Suppliers with groundbreaking technology can often fall victim to a far larger and very influential customer with demanding requirements. What happened with GT Technologies will obviously unfold in the coming weeks including its current relationships with Apple.
Hello Everyone,
On the day after posting the above commentary, the Wall Street Journal reports that Apple made a decision not to source sapphire screens for the new iPhone6 following tests which demonstrated that sapphire was brittle and cracked when phones were dropped from various heights or angles. The WSJ cites sources familiar to the matter indicating that as recently as a few months ago, Apple engineers were testing iPhone prototypes with a sapphire screen.
The publication further reported that after indicating it would invest upwards of $700 million in the new sapphire technology, and after providing four pre-payments of $78 million to-date, the publication cites sources as indicating that Apple is withholding the final payment of $139 million which was due at the end of October.
GT shares collapsed by 93 percent on Monday, wiping out upwards of $1.4 million in market value.
The day after the bankruptcy filing adds more open questions as to what happened and why did it come to this development. Why was Apple willing to invest upwards of $700 million in an untested technology? Why was a supplier placed in such a precarious condition? Finally, why was business and other media hyping sapphire as the screen material for the new iPhone models?
Many open questions will obviously be analyzed in the coming weeks. This may well turn out to be a case study on the perils or watch outs for being a promising supplier for Apple in development of potential innovative technology.
Bob Ferrari
Hello Everyone,
Here is another update regarding our ongoing commentary concerning GT Advanced Technologies.
The Wall Street Journal now reports that GT has indicated that it will close two separate sapphire glass production facilities, one in Mesa Arizona and one in Salem Massachusetts, impacting upwards of 890 jobs.
The WSJ cites GT court documents indicating that Apple’s supply contract terms were “oppressive and burdensome” and that terminating the supply contract was the only way to stop the financial bleeding. According to a GT court statement: “The cash burn at GTAT’s sapphire-manufacturing operations for the benefit of Apple is not sustainable”. The supplier indicated that it regretted the lost jobs but that closing the factories by year-end would help to stop mounting losses.
Apple again declined to comment to the WSJ. What is also unclear is who will Apple turn to as a new prime supplier for sapphire glass associated with its new wearable watch products, although there is most likely a backup contingency plan.
In its bankruptcy filing, GT declared that creditors are owed $145 million while bondholders are owed $434 million.
This GTAT situation will obviously be a news item for weeks to come.
Bob Ferrari