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Apple Sapphire Glass Supplier GT Advanced Files For Bankruptcy
mrspoonsi writes GT Advanced Technologies is filing for bankruptcy. In an announcement on Monday, GT Advanced, which makes sapphire displays that many investors hoped would be in Apple's newest iPhone, said that it was filing for Chapter 11 bankruptcy. In early September, shares of GT Advanced got crushed after the company's sapphire displays were not in the latest version of Apple's iPhone 6 and 6 Plus. GT Advanced, however, signed a multi-year agreement with Apple last November to supply the company with sapphire material. That agreement included a $578 million prepayment, which GT Advanced is set to repay Apple over a five-year period starting in 2015.
It might be important to consider that a company filling for chapter 11 bankruptcy protection is not terribly uncommon. The company has no plans to shut down, nor liquidate assets. Ch. 11 is all about restructuring debt so that they can pay off the creditors and return to normal operating procedures. Most people in this thread are treating this like a Ch. 7 which it is not. In fact the difference between the two are so stark that many smart investors will buy into companies that have good prospects and a plan in Ch. 11. It can make a company much much stronger on the back end.
Having been on the receiving end of a contract written by a company the size of Apple, I can tell you that by "specifications" the contract likely said "...and any other reason that Apple Inc. so chooses..." Companies the size of Apple have so much weight they can literally just bankrupt you.
The contracts I've seen were generally between parts manufacturers and automakers. The lure of all the money from GM or Ford is very enticing. But the contractual agreement you enter in is very precarious.
You will increase your production capacity by 1000% Here's the money to do that.
You will deliver parts on demand, we will not store any parts.
If we chose not to use those parts, we do not have to pay you.
If we chose to leave this agreement, you have to pay our entire investment back.
What they're basically doing is putting their entire parts chain into its own company, forcing that company to store all of the parts and all of the liability. If they suddenly decide not to go that route anymore, the company and all of the parts dispersers. Because they have to refund your investment, you can ensure that the vast majority of all the assets you invested are returned to you while all of the liability lands on others outside you company. It's all good for the Parent company and all bad for the supplier. The banks lose money, the employees get fired, the owners lose their business.
I've seen agreements like this where the parent company demanded some change that the supplier couldn't pull off as quickly as desired. The parent company owned the tooling, per the contract, and literally pulled it within hours and had it over at some other company. The supplier was bankrupt and laying people off withing 48hrs. That's how asynchronous these deals have become.
And don't think this is just Apple or automotive companies. This is how things are done now. I would not want to own a parts supplier in these times.