I am likely missing some key aspects of the situation, but wasn't the bankruptcy due to an overreaction by the market regarding Apple not using Sapphire glass as their main display material for their new phones?
I could see why Apple would be surprised, as they have gone on record supporting GT Advanced with investment in an Arizona facility, and with plans to use the material on some models of the Apple watch. I guess the lack of the final advancement was enough for trigger happy investors to pull the plug.
I hope it wasn't sabotage by apple, but who knows.
This is all a very odd situation. We'll have to wait until tomorrow morning and the bankruptcy hearing to find out what's going on.
What we know is that GT formerly made the sapphire furnaces. They wanted to diversify and sell the sapphire directly. There are rumours that Apple was impressed with GT's sapphire because of its superior drop-test results, which is why they chose them specifically to partner with.
Apple built GT a building in Arizona (that's Apple's building, GT just occupies it), loaned GT $580m to build the furnaces, and asked for repayments in the form of product or cash, but at Apple's discretion and with Apple under no obligation to ever buy any sapphire at all from GT. That's right - there was no minimum purchase agreement. There were also a bunch of clauses we don't have the full details on under which GT would have to repay the money more quickly (maybe if it failed to meet certain targets).
That seems like a horrible deal for GT - if Apple decide against sapphire (as they did), they are stuck with enormous sapphire manufacturing capacity; 1/2Bn is enough to build an absolutely gigantic plant. They have also taken on lots of new employees.
GT's position right now is that their cash seems to have drastically shrunk - they seem to have gone through $250m of cash last quarter. That points to them having to repay Apple's loans. They still have $85m in the bank, so they're not insolvent. They have also doubled their inventory, so they have loads of sapphire waiting to be sold.
I can see several ways out of this for GT. The biggest problem is the loan repayments to Apple. Chapter 11 will halt that. Alternatively, they could negotiate an extended repayment plan with Apple. I could see Apple agreeing to that - they don't want to endanger so many jobs in the US, and they still need an exclusive, high-capacity sapphire manufacturer for the future.
The next issue is to repair the balance sheet. They need to shift that sapphire! Hopefully rumours of quality control issues are not true. The iWatch is too far out; they need to move lots of it before the end of the year. Maybe Samsung will buy it and do a limited-edition GS5 with it?
