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GT Advanced COO Blames Apple's Strict Sapphire Contract Terms for Bankruptcy Filing

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GT Advanced's Chief Operating Officer Daniel Squiller yesterday filed some revised documents with the court, giving a bit more insight into what went wrong between Apple and GT Advanced that led to the latter company's Chapter 11 bankruptcy filing.

Shared by Fortune, Squiller's affidavit [PDF] delves further into the contractual obligations outlined in GT's agreement with Apple, which led to huge losses of money as the contract was highly favorable to Apple.

gt_advanced_logo.jpg
It was known that the terms of the contract prevented GT Advanced from selling its sapphire to customers other than Apple, but as it turns out, Apple also had a vast amount of control over GT's sapphire production. For example, GT was not able to modify equipment, specifications, or the manufacturing process without express consent from Apple, but Apple could modify the terms at any point. GT was also expected to fulfill any of Apple's purchase orders at Apple's demand, with severe penalties for failing to do so.
GTAT must accept and fulfill any purchase order placed by Apple on the date selected by Apple. If there is any delay, GTAT must either use expedited shipping (at its own cost) or purchase substitute goods (at its own cost). If GTAT's delivery is late, GTAT must pay $320,000 per boule of sapphire (and $77 per millimeter of sapphire material) as liquidated damages to Apple. To put this figure in perspective, a boule has a cost of less than $20,000. Apple, however, has the right, without compensating GTAT, to cancel a purchase order in whole or in part at any time and reschedule a delivery date at any time.
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Apple was also in charge of the Mesa, Arizona facility that it acquired for GT Advanced, and delays at the facility cut into GT's production time. Apple reportedly decided it was too expensive to provide backup power for the furnaces and on multiple occasions, power interruptions led to delays and loss of sapphire boules. GT Advanced was also not in charge of the sapphire cutting tools that it received, and in his affidavit, the COO says that the tools did not "meet their performance and reliability specifications."

The contractual obligations ultimately resulted in GT's inability to meet "cost and production targets" for reasons that it says were "beyond its control." Issues in scaling its technology to create large 262kg sapphire boules to meet Apple's specifications also led to the bankruptcy filing.
The key to making the transaction profitable for both sides was the production of a sufficient number of 262kg boules of sapphire crystal meeting the specifications required by Apple. [...]

Unfortunately, the production of 262kg boules of sapphire could not be accomplished within the time frames the parties had agreed, and was more expensive than anticipated. These problems and difficulties resulted in a liquidity crisis at GTAT, which led to the commencement of these chapter 11 cases"
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Though Apple and GT Advanced have reached an agreement to dissolve their partnership, the two will remain in contact as GT Advanced continues its research work focused on producing larger sapphire boules. The two companies will meet quarterly to discuss GT's progress on that front, with collaboration still possible if both sides agree to move forward.

GT Advanced has already begun winding down operations at the Mesa, Arizona sapphire plant, wrapping up sapphire boule production, decommissioning furnaces, and laying off employees. The plant is expected to shut down on December 31.

Article Link: GT Advanced COO Blames Apple's Strict Sapphire Contract Terms for Bankruptcy Filing
 
Article Link
https://www.macrumors.com/2014/10/29/gt-advanced-bankruptcy-filing-insight/
I know that everyone will get on GTAT's back about this, but I respect his point. Apple has billions upon billions of dollars, they don't. GTAT took a chance, and failed. It should be respected that they tried.

This is also a loss for Apple. Obviously, Apple wanted this work done, and they wanted the expertise that GTAT had. Perhaps if Apple was not as heavy handed with the contract terms, this would have worked out for all.

It's not necessary for Apple to flex its corporate muscle all the time. Sometimes it can backfire.
 
Of course Apple isn't going to pony up half a billion unless they have strict demands for a high quality product.

GTAA shouldn't have signed if they couldn't promise the results.
 
So. A COO is dumb enough to sign a contract that was so potentially debilitating to his company, and then he blames Apple for signing next to his name?
Interesting...
 
Peace said:
Of course it was highly favorable to Apple. Apple paid for it.

If the COO of GT thought it was the strict contract why did he sign it ?
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Exactly. I don't like the tone of writing, as if Apple single handedly forced GT to do all these things. It's a contract signed by at least two parties.
 
He has some good points, but if this was stated in the contract prior to their signing who's fault is this? Unless he states that Apple forced them to sign I really can't feel sorry for them.
 
Z400Racer37 said:
So. A COO is dumb enough to sign a contract that was so potentially debilitating to his company, and then he blames Apple for signing next to his name?
Interesting...
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Exactly, both the Executives and their lawyers agreed to this. Don't blame Apple for your legal stupidity GTAT.
 
TheBearman said:
He has some good points, but if this was stated in the contract prior to their signing who's fault is this? Unless he states that Apple forced them to sign I really can't feel sorry for them.
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Exactly, they signed a bad contract and now his made about it. What he is essentially saying is that I don't know how to protect the company on deals.
 
Isn't Apple rich enough? Like seriously who creates possible fines of $300,000.
 
theheadguy said:
I know that everyone will get on GT's back about this, but I respect his point. Apple has billions upon billions of dollars, they don't. GT took a chance, and failed. It should be respected that they tried.

This is also a loss for Apple. Obviously, Apple wanted this work done, and they wanted the expertise that GT had. Perhaps if Apple was not as heavy handed with the contract terms, this would have worked out for all.

It's not necessary for Apple to flex its corporate muscle all the time. Sometimes it can backfire.
Click to expand...

I couldn't disagree with you more. GTAT entered into a contract with Apple making certain claims of their sapphire expertise and didn't deliver. They were too greedy and only saw $$ signs while overlooking the terms of the contract. They got what they deserved. Plenty of smaller companies have entered into agreements with Apple and profited handsomely.
 
I said it in one of the other threads; this is what happens when you breeze through an agreement and click "Accept".
 
The perils of pioneering new materials and technologies. It is a real shame that they couldn't make this work. It sounds like Sapphire is just too expensive right now.
 
They signed the contract knowing full well what was in it. This was a GTAT screw up from the beginning. They went into this deal thinking it meant something other than what it meant, expecting far more business than what Apple was saying they wanted. They gambled and lost.

Claims of Apple maliciousness after the fact make no sense. Apple wanted a company that could produce. Putting GTAT out of business would make no sense from Apple's perspective. GTAT either misrepresented themselves to Apple, or their decision makers weren't listening to their engineers about what was possible or made sense. Sapphire never was, and never will be the solution to every problem. Apple apparently knew this. GTAT didn't.

I feel bad for the GTAT employees who have such terrible managers.
 
Last edited:
stevers said:
I said it in one of the other threads; this is what happens when you breeze through and agreement and click "Accept".
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lol yes but pretty sure tons of lawyers on both side read the agreement. Apple is like Walmart of IT world. They can and will ask for ridiculous things and will get away with it from their suppliers.

Both parties are to blame here.
 
TheBearman said:
He has some good points, but if this was stated in the contract prior to their signing who's fault is this? Unless he states that Apple forced them to sign I really can't feel sorry for them.
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Apple CBM had the upper hand of getting the GSA contract signed with GT. Without signing the GSA, GT would have not moved on getting the project started. The fault is on GT for not delivering the part per requirements on time.
 
theheadguy said:
I know that everyone will get on GTAT's back about this, but I respect his point. Apple has billions upon billions of dollars, they don't. GTAT took a chance, and failed. It should be respected that they tried.

This is also a loss for Apple. Obviously, Apple wanted this work done, and they wanted the expertise that GTAT had. Perhaps if Apple was not as heavy handed with the contract terms, this would have worked out for all.

It's not necessary for Apple to flex its corporate muscle all the time. Sometimes it can backfire.
Click to expand...

In earlier stories, Apple was said to be very flexible and had not asked for their money back when GTAT missed milestones or asked for penalty payments. All they did as I understand it is to not make the last payment since the criterias were not met. This does not sound like corporate muscle flexing.

Still, the terms of the contract seem so one sided, I wonder why GTAT would have signed that contract to begin with. The COO or CEO or both should go back to contract school before they try again.
 
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