A recent court filing made by GTAT’s chief operating officer Daniel Squiller throws some light as on what led to the partnership between Apple and its Sapphire supplier crumble and the reason for GTAT filing for Chapter 11 bankruptcy.
Squiller in the statement noted that GT had entered into a $578 million partnership deal with Apple to supply more than 2,000 sapphire-growing furnaces. Although as per the exclusive deal, GT Advanced was committed to supply a significant amount of sapphire to Apple and was restricted from selling sapphire to any other company, the iPhone maker was under no obligation to buy.
The deal bestowed the Cupertino with power to make immediate changes to the equipment, specifications or materials used at any time, while GTAT had no such capability.
Squiller said that fabrication costs for producing 262kg boules of sapphire crystal meeting the specifications required by Apple were much higher than anticipated.
“GTAT believes that it was unable to achieve its planned fabrication cost and production targets because many of the tools did not meet their performance and reliability specifications,” the COO wrote.
Unfortunately, the production could not be accomplished within the time frames the parties had agreed, and resulted in huge loss for the sapphire supplier. The price of sapphire was also significantly lower than what GTAT expected. This led to the company to sell sapphire material at a “substantial loss” after it was unable to negotiate pricing changes with Apple.
Squiller said GT Advanced in total incurred around $900 million in costs in connection with the Apple project, of that $439 million was funded by Apple’s prepayment.
“Given the severity of the losses incurred as a result of the transactions with Apple and the terms of the Apple Agreements, GTAT had little choice but to commence these Chapter 11 cases,” Squiller said.
Squiller refused to disclose any further details as both Apple and GTAT have agreed to a settlement to put the issue under cover.
