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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.
You forgot step 3.5) Where the "sapphire glass" turns out to not meet the specifications Apple requested and GTAT committed to providing.
"Have you ever thought about just turning off the TV, sitting down with your kids, and hitting them?"
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.
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.
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.
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.
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.
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.
"Physics is to math as sex is to masturbation." -R. Feynman
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.
Faster! Faster! Faster would be better!
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