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.

Comments

How can you

[mrspoonsi]

get a $578M prepayment and go bankrupt in 10 months?

Re:How can you

[Tough Love]

By having to carry that payment as a liability, presumably according to the contract.

Re:How can you

[kamapuaa]

They realized they wouldn't be able to deliver on the contract?

It's not like free money.

Re:How can you

[UnknowingFool]

Apple paid the company 578 million dollars up front to supply them with this glass.
Apple then said "sorry, changed our minds, we aren't going to use your glass".

I'm not sure of what your source is but as far as I know Apple is using sapphire for their watch. I assume the supplier is GT because it is not an easily produced material. They are not using it for their phones but it was only Internet speculation that said Apple would use sapphire on the iPhone 6. Maybe Apple intended to but for manufacturing reasons opted not to do so.

Re:How can you

[Lehk228]

Cocaine is a hell of a drug.

Re:How can you

[ShanghaiBill]

What I don't understand is how to burn through 578 million dollars in 10 months.

Bankruptcy does NOT mean you have $0 in your checking account. It simply means that your liabilities exceed your assets, your business prospects are unlikely to change that, and your creditors are unwilling to take a voluntary haircut. So you declare bankruptcy, and get a court imposed settlement between you and your creditors. You can usually continue to do business both during and after the bankruptcy.

At least in America, having at least one bankruptcy under your belt gives you some street cred with future investors, as long as you appear to have learned from your mistakes.

Re:How can you

[Matheus]

Honestly give me the $578M... I'll burn through it in a matter of days.

Of course what I'd be spending it on is probably quite different than what they did (if they spent it at all... could be scam)

Just an off the top of my head guess:

Get large, lucrative, long term contract with Apple to deliver a component. Get large advance to get production up to speed. Spend all of it (or more... high tech factories are expensive) ramping up said production only to have your first expected large order get pushed to "undefined future". Realize you didn't budget for that and file bankruptcy.

I've seen posted that this isn't the biggest part of this company's business plan but I could easily see a company like this 'betting the farm' on this deal and screwing themselves in the process. Happens a lot. Bankruptcy is also a variety of different things so this isn't them being broke or going out of business necessarily but an acknowledgement that they are unable to fulfill their current level of liabilities. Apple may lose a bit or a lot on their investment but not really a big deal due to a combination of A) They more than anyone else in the world right now can afford it. B) They probably haven't lost as much as you think. Apple made the choice to not include this component in the '6. I'm sure they were aware of such an issue when they made such a decision. Just beans being counted.

Re:How can you

[geekmux]

get a $578M prepayment and go bankrupt in 10 months?

While many would suspect foul play here, I'm willing to bet it costs more than a nickel or two to ramp up to support one of the most popular electronic devices in existence.

Re:How can you

[wagnerrp]

Presumably there was some stipulation in the contract that GT Advanced would need to meet certain mechanical and volume requirements by a certain date. When they failed, contingencies in the contract included repayment of at least part of that seed money.

Re:How can you

[ShanghaiBill]

Care to expand on this?

Plenty of private investors had looked at Solyndra and declined to invest. It was already apparent that Solyndra had bet on the wrong technology, and their manufacturing costs were uncompetitive. They were using questionable accounting to cover up their problems. When news got out that the government was thinking of giving them a half billion taxpayer dollars, lots of people started raising red flags. Many people, both inside and outside the company, already knew that Solyndra was a sinking ship.

Two lessons that should have been learned from the Solyndra debacle, but were not:
1. The government should stick to funding basic scientific research, and refrain from "picking winners" by investing in private businesses. It is far better to leave that to people investing THEIR OWN MONEY.
2. If the government ignores lesson #1, and wants to invest anyway, on the theory that politicians are smarter than markets, then they should pair tax dollars with private investments, and only invest a limited percentage, in businesses that have been vetted by private investors.

Re:How can you

[butalearner]

What I don't understand is how to burn through 578 million dollars in 10 months.

Bankruptcy does NOT mean you have $0 in your checking account. It simply means that your liabilities exceed your assets, your business prospects are unlikely to change that, and your creditors are unwilling to take a voluntary haircut.

Thank you, geez these comments are preposterous. It's a pretty simple situation: they took a huge pre-payment and it became a short term loan. I just read that they were starting to build up production capacity, probably using that pre-payment, that they will no longer need. But even if they didn't, that big of a liability plus a big hit in stock price (35% drop even before they declared bankrupcy) when everyone found out Apple dropped them...that's a pretty massive hit to the balance sheet. They'd hit almost $20/share earlier this year, now they're trading at just around $1. If I wasn't poor...

Re: How can you

[Anonymous Coward]

Apple seems to be flexing their celebrity status a bit - inventing boom 'n' bust stocks that suck money out of potential investors while simultaneously incurring no net losses. Next: Apple agrees to buy GT assets for pennies on the dollar thus getting a sapphire processing facility and inventory on the cheap. GT staff will be laid off until Apple decides when the right time to check boxes on the marketing sheets. GT have no choice in this because, heck, they're already bankrupt. Apple can name their own price here because they have that heavy-handed obligation resting over GT like an executioner's axe.

Good deal: Apple gets cutting edge equipment on the cheap, investors get screwed, staff gets screwed. It's a win-win for Apple stockholders.

Also: Celebrities tend to be finicky friend-a-days. Self-absorbed egotistical dicks with a penchant for self-gratification and no remorse when they fuck people over.

Re:How can you

[Bartles]

I'm glad DOE invested heavily in Solyndra. I bought a bunch of very expensive Solyndra equipment on Ebay for about $0.10 on the dollar. Which means it was bought at bankruptcy auction for about $0.03 on the dollar. Everybody wins!

Re:How can you

[ColdWetDog]

Why can't the government fail, just like a 'regular' investor? While I actually don't disagree - I think the role of government is in basic research, but the analogy holds. Both basic research and applied investing can fail. The former might result in an idea that didn't pan out, the latter results in an investment that didn't pan out. Investments are never guaranteed.

This doesn't mean that Solyndra wasn't screwed up for reasons that you mention, but I have no real beef about the government losing money on investments. It is something they're good at (losing money, that is). Always work to your strengths.

Re: How can you

[Ol Olsoc]

Apple seems to be flexing their celebrity status a bit - inventing boom 'n' bust stocks that suck money out of potential investors while simultaneously incurring no net losses.

You mean like expecting a working product, and not getting it because it doesn't work, but you expect them to pay for it?

I think you're just pissed that the sapphire screens didn't ship with the iPhone 6, so you can't go "See? SEE? Apl Sukz! Android! Rulez!"

So now you're reduced to complaining that they aren't going to pay for something that doesn't work.

Re:How can you

[ShanghaiBill]

The government doesn't have any consequences when they make a bad investment, so the due diligence is going to be lower.

Even if the government is careful, they will still do poorly. Government loans require lobbying and dealing with a lot of bureaucracy, both before and after funding. Most companies see it as a last resort. They go to the government only after being rejected by private investors. So the government has to select from a collection of stinkers, after private investors have skimmed off the cream.

But the problems go even further. Any sensible investor is familiar with the concept of a "sunk cost". Yet there are no sunk costs in politics. Politicians can't just write off a bad investment, cut their losses, and admit it was a mistake. They will continue to throw good money after bad, in an effort to avoid paying the electoral price. You end up with investments being managed the same way we managed the Vietnam War, and the invasion of Iraq.

Re:How can you

[RavenLrD20k]

Yeah...you missed the non-partisan view of the logic stream. Allow me to show how things played out without the republican or democrat filters. Bush looked at Solyndra and tried to push to invest in it...but the administration ran out of time during a political time sink. Obama's administration took over and continued the efforts of the previous administration to invest. So basically you have the fact that the idea was started by one round of idiots and pushed forward (or at the very least, not stopped) by the next round of idiots and through both rounds of idiots the American people got shafted. Same story as what always happens in politics...with the supporters of idiot circle A blaming idiot circle B for the issue, and idiot circle B supporters blaming idiot circle A...perpetuating the huge ass political circle jerk of finding someone to blame for a problem instead of working on actual solutions and thus letting things continue to spiral out of anyone's control all the while blaming the other guy for not taking responsibility of the control stick and letting the flat spin continue.

Round and Round she goes, where she stops nobody knows. So goes American Roulette

Re:How can you

[BitZtream]

Except they didn't get all of it up front, it was being given in chunks smaller than $30 million per quarter. Apple has probably given them less than $60 million, possibly a little over $80 million. Pocket change for Tim Cook.

And if you actually understood what was happening, they GT Advanced) are operating business AS USUAL during the bankruptcy. Its not like the company is closing up shop and sending everyone home and shutting down production. This is unlikely to have any effect on their production unless the judge says no. I'd bet a months pay Apple knew this was coming and is prepared for it, probably even helped plan it.

Apple DOES their due diligence checks. They don't wonder into shitty deals with companies that can't keep them. They aren't HP.

Re:How can you

[cheesybagel]

A lot of companies used CIGS or CdTe. Because you can more easily use print and roll technologies and get fabrication costs down. Examples include FirstSolar and NanoSolar. What the Chinese managed to do was lower the costs enough using conventional technology pushed to the limit that the advantages of low temperature manufacturing without requiring silicon ingot formation, etc of the other models wasn't good enough to compete. Although some also claim the Chinese are practicing dumping. Which may also be true.

Re:How can you

[Squirmy McPhee]

A lot of companies used CIGS or CdTe.

"Used" is the key word here.

Because you can more easily use print and roll technologies and get fabrication costs down.

In theory. In practice, almost everybody who has tried it has failed. Thin film PV requires very large sheets of very thin layers that are also very uniform. It's not an easy task, and those who have solved it have not been eager to share how they did it. Nor have they been able to maintain their cost advantage against silicon PV.

Examples include FirstSolar and NanoSolar.

I'll grant you that First Solar is doing just fine, but not only has Nanosolar been unsuccessful, it doesn't even exist anymore. The only reasonably successful CIGS manufacturer to date (as defined by having a production volume similar to that of mid-sized silicon PV companies) has been Frontier Solar, and they ain't exactly cheap.

What the Chinese managed to do was lower the costs enough using conventional technology pushed to the limit that the advantages of low temperature manufacturing without requiring silicon ingot formation

Huh? Low-temperature manufacturing? No ingots? I monitor Chinese PV manufacturing practices like it's my job. Because it is my job. I've been inside the fabs. I know the people who develop the technology. I assure you that they process their silicon and their wafers at the same temperature as everybody else, and that every single one of them is using ingot-based wafers. What the Chinese managed to do was develop an extensive local supply chain, then squeeze the crap out of everybody's profit margins when times got tough. Low labor cost played a role too, though with rapid wage inflation, the low labor intensity of solar cell production, and the increasing automation of solar module production, labor cost is not really much of a factor anymore.

Re:How can you

[TheRaven64]

Because a regular investor is investing their money

Spoken like someone who has no idea how the banking system works.

Possible sequence

[Mike_EE_U_of_I]

I don't know that this is what happened, but it seems likely.

1) Apple wants to use sapphire for main glass in Iphone.

2) Apple signs contract with GTAT to supply the sapphire, including a pile of money to build sapphire production facilities.

3) Apple pushes all risk onto GTAT. IOW, if Apple decides not to use the sapphire for the displays, GTAT has to repay the pile of money from step 2.

4) Apple does not use sapphire. GTAT can't repay money because they already spent it building sapphire production lines which no have no demand.

5) GTAT declares bankruptcy.

Re:Possible sequence

[Kenja]

You forgot step 3.5) Where the "sapphire glass" turns out to not meet the specifications Apple requested and GTAT committed to providing.

Re:Possible sequence

[bill_mcgonigle]

6) the governments socialize the losses of GTAT onto all of the companies that GTAT owes money to. Had GTAT and Apple succeeded, all of the profits would have been private, mostly recognized in Cork.

Three cheers for corporate welfare!

Re:Possible sequence

[cdrudge]

You forgot:

6) Apple obtains GTAT through bankruptcy proceedings in lieu of being repaid for cheaper than what it would have cost before #2

7) Apple vertically integrates a component of supply chain using change it found in their lobby's couch cushions.

Re:Possible sequence

[Charliemopps]

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.

Re:Possible sequence

[tlhIngan]

the governments socialize the losses of GTAT onto all of the companies that GTAT owes money to. Had GTAT and Apple succeeded, all of the profits would have been private, mostly recognized in Cork.

Actually, that can't happen because the GTA plant Apple paid for (and bought the equipment for) is in Arizona (I think). So any profits GTA makes has to be reported in US dollars and both Apple and GTA have to pay US taxes on it.

To exploit it in Cork requires Apple to then sell the panels at cost to Apple's subsidiary in the EU first, who then sells it at regular prices to Foxconn and others making the phones. So Cork reports that profit. But if the phone returns back to the US (by and large Apple's largest market) then Apple's Cork needs to charge Apple (Cupertino) the regular retail price for it to capture the money in the EU.

Of course, Apple Cupertino needs working cash, so they probably get it at a good discount so US sales generate cash or their US operations (but also taxed in the US).

Apple's Cork taxbreak only works for sales outside North America. Inside North America sales are fully taxed with all taxes paid to Uncle Sam as required.

Buy an iPhone in California, and California and the feds get paid. Buy an iPhone in China and that money goes to Cork.

Chapter 11 is not business death.

[IcarusMoth]

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.

Re:Chapter 11 is not business death.

[geekmux]

It might be important to consider that a company filling for chapter 11 bankruptcy protection is not terribly uncommon.

Well yeah. Just look at Donald Trump. He turned bankruptcy into a hobby, and it doesn't seem to have affected his hairstyle budget whatsoever.

They have some interesting tech

[hairykrishna]

I work in BNCT research and some guys from GT advance have presented at a couple of recent conferences. Of interest to us was their 'hyperion' (yes, like Borderlands) accelerator they'd been developing. Huge amounts of beam current from a fairly compact and easily maintained package. They were planning on using it to peel off very thin layers of sapphire via ion implantation, we could use it as the first stage of a neutron generator and I'm sure there are tons of other industrial applications. The senior guys I met seemed very good - proper engineers with the minimum of marketing bullshit. I think they'll do ok even if this is a pretty major set back.