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

Two to tango

Stupidity on both sides. losers all round.

Greedy, COO signing a contact like that. It was a gamble for them, they thought if they pull it off they would be laughing. But it was doomed to fail, new tech, new playing field, no control. Ballsy but stupid.

Apple is even more stupid on this occasion. On home turf, where they want to promote creating jobs and US investment, they go and put the screws down on a company that is trying to innovate and push the boundaries for mutual success. Madness, partnerships are meant to work for both, not be heavily one sided.

Only people I feel for at the workers that poured their hearts into trying to make this work; just ordinary people thinking things where on the up, but tumbled even more quickly.

Apple, man up, put in the funds and make it work for you and GT, not let it fold.
 
Exactly...

I thought of Wal-Mart right away while reading this. (And unlike some people? I don't go around blaming Wal-Mart as the "bad guy" for trying to do business that way, either. Clearly, it's ONE possible business model and it's pretty profitable and successful for Wal-Mart. Vendors who know what they're getting into with them seem to find it worthwhile too.)

The bottom line, IMO, is that if you're going to do business with a mega-corp the size of Apple or Wal-Mart -- you have to have your own ducks in a row first. Chances are, they'll demand such a large quantity of product from you that you won't be able to supply all of it in a timely manner, otherwise. Too many people seem to think one of these deals is the TICKET to success, rather than saying, "No thanks. We're not big enough to do business with you yet."

On the flip side though? I think Apple would have been smarter to simply buy up a company like GT Advanced, take the WHOLE operation in-house, and make it their own. The fact they didn't do so tells me the sapphire thing was never really THAT high a priority for them in the first place. It was more of a "Great thing to have, if we can actually get somebody else to produce all of it for us on our terms."


CaptOblivious said:
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.
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how could anyone with half a brain agree to those absolutely crazy terms? Sure you want to get the contract but come on, negotiate out those unreasonable lines in the contract.
 
Blaming a counter-party for lawful behavior within the terms of a signed contract is like blaming a bartender that the apple-tini you ordered is too sweet of a drink.
 
eac25 said:
Legalistically, no - agreed. It's really a stretch of the word "partner" though, and Apple clearly is in a position to have been a little softer on their smaller "partner." Moralistically, therefore, it's a bit difficult to absolve Apple of *all* blame...
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I would suggest you have a look at what Apple has invested into this partnership and how much they have done to build up GT Advanced's capacities and capabilities. This kind of deep involvement and investment into a supplier is extremely unusual. The usual customer-supplier relationship is that the customer orders something, and the supplier delivers it and gets paid. But in this case, Apple made a major upfront investment. And people are still expecting Apple to be softer on GT Advanced? What else could they have done? Lobster dinner for GT Advanced employees every day? Free Mac Pros on each desk in the R&D department? Tim Cook working sapphire furnaces in his free 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.
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Most of the gamble was on god damn Apple's side; they're the one who put the money and they've lost most of it. That guy gambled with Apple's money while making a mint himself selling stocks while employees lost their shirt. HE should just shut the hell up and slink into the night. Slime like that is what there is so little respect of C level execs. If you sign a contract, well YOU SIGNED IT. Good grief!!
 
I don't believe the headline here really does any justice to the events leading to the bankruptcy filing, if you read the affidavit. Just another crappy sensationalized headline. And lots of stupid comments to be frank.
 
Nobody is required to manufacture for Apple. You know going in they have high standards, they never hide that fact. This company was a failure waiting to happen. Apple went to length to help them be successful and they blew it. How many places get a factory built for them and cash advances like Apple gave them? Not many. Apple could of nailed them on this breech of contract and destroyed their company, but they were gracious.
 
Cuban Missles said:
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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As GTAT are on the defensive, it would make sense that we're missing the side of the story that meant they got something out of this. For one thing GTAT appeared to have over estimated their ability to make boules in time for September's iPhone release and under estimated their costs, essentially negating their side of the agreement. This seems like a good reason for Apple to put in performance fines as the iPhone is released very much to a schedule and delays could have cost them marketshare.
 
GT gambled and lost. But it sounds like their loss wasn't 100% their fault given the terms. They entered in the contract and got their hands tied. That's on them. Apple, not having Sapphire for whatever use they were going to have it for (presumably the iPhone), seems to be a result of their strict terms/inflexibility in doing everything they can to ensure success. But again this is just one side's version.
 
As COO he should have been well aware of the capabilties of his company. Especially for a project with such apparently high risk there should have been mitigation plans in place. There might have been but they failed.

In stead of crying publicly about the bullying behavior of the contract partner, GT should look at themselves and think how greed could have put them in a position to sign a contract that ultimately made many people unemployed.
 
Bad contract is bad

This contract was bad, not only for GT but for Apple as well. GT execs were stupid and greedy for signing it (probably had an eye on the stock rising). If the COO is to be believed this was going to fail no matter what:
"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."

I find the bolded portion of that comment hard to believe. What company of Apple's stature would deem backup power too expensive? Hell, I don't even know of small companies that don't have backup power. As critical as this component was rumored to be, having no emergency fallback seems hard to believe. Also, why would GT not be in charge of the choice of cutting tools? What does Apple know of sapphire cutting tools. This all seems to fantastic to be true. If it is, this looks like a fine mixture of idiocy, greed, and arrogance.

Someone else said it better earlier. A customer running your business is a recipe for failure.
 
MentalFloss said:
I would suggest you have a look at what Apple has invested into this partnership and how much they have done to build up GT Advanced's capacities and capabilities. This kind of deep involvement and investment into a supplier is extremely unusual. The usual customer-supplier relationship is that the customer orders something, and the supplier delivers it and gets paid. But in this case, Apple made a major upfront investment. And people are still expecting Apple to be softer on GT Advanced? What else could they have done? Lobster dinner for GT Advanced employees every day? Free Mac Pros on each desk in the R&D department? Tim Cook working sapphire furnaces in his free time?
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I hear you - Apple did take on a lot of upfront risk. From the way the press on this reads there were signs as early as February that this was headed South. Maybe Apple wasn't in on this info, but maybe they were. Considering everything though (from what I've read, which is admittedly not, in fact, *everything*) when the real troubles started it was just a matter of a miss by a couple of weeks. I have to figure that by then Apple knew. Somewhere between those dates I speculate that Apple could have been somewhat more helpful to their partner to reach the agreed-to goals, in order to achieve their own goals, make the most of that up-front risk and position both themselves and their partner for a longer-term success. Instead, they chose to back away.

I'm not saying it was wrong - just that it falls into something of a (space-)gray area. It would fall into this gray area whether we were talking about GTA, Samsung, Foxconn or any other partner. But in GTA's case the results of Apple walking away are obviously more detrimental to the partner than in the cases of those other partners. And fundamentally, choosing to abandon their partner is a choice - based on very sound logic - that they could have landed on differently and saved the day for everyone involved. Hence my conclusion that, IMO, they should not be absolved of *all* blame.

Would that be generous? Yes. Would that be overly generous? Probably. Would it have been the "right" thing to do? That all depends on which viewpoint you take. I'm merely pointing out that no single viewpoint is correct (in an absolute sense) to the exclusion of all others...
 
But they agreed to it!!! Goodness.

It's as if they contract was just another "Terms and Conditions" page and they just hit "accept" without reading them.
 
69Mustang said:
This contract was bad, not only for GT but for Apple as well. GT execs were stupid and greedy for signing it (probably had an eye on the stock rising). If the COO is to be believed this was going to fail no matter what:
"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."

I find the bolded portion of that comment hard to believe. What company of Apple's stature would deem backup power too expensive? Hell, I don't even know of small companies that don't have backup power. As critical as this component was rumored to be, having no emergency fallback seems hard to believe. Also, why would GT not be in charge of the choice of cutting tools? What does Apple know of sapphire cutting tools. This all seems to fantastic to be true. If it is, this looks like a fine mixture of idiocy, greed, and arrogance.

Someone else said it better earlier. A customer running your business is a recipe for failure.
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Yes, I think the COO is basically talking out of his ass. BTW, GTAT were dinged for the bad quality of their furnace they sold to someone else at that time.. Were their own furnace up to snuff hey? No mentions at all...
 
Keirasplace said:
HE should just shut the hell up and slink into the night. Slime like that is what there is so little respect of C level execs. If you sign a contract, well YOU SIGNED IT. Good grief!!
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Why all the hate? He took a risk. Guess what? If you work with innovative manufacturing processes, you have no other options: by definition you are on the bleeding edge of technology and you're bound to find issues as you go.

In this case they didn't make it, but the gamble was worth it: innovative companies are meant to take risks. Some are bound to fail, and that's why bankruptcy exists.

It's also very easy to judge now: I'm not sure many of us would have refused the deal with Apple at the beginning, even with the very unfavourable clauses the potential was incredible.
 
eac25 said:
I hear you - Apple did take on a lot of upfront risk. From the way the press on this reads there were signs as early as February that this was headed South. Maybe Apple wasn't in on this info, but maybe they were. Considering everything though (from what I've read, which is admittedly not, in fact, *everything*) when the real troubles started it was just a matter of a miss by a couple of weeks. I have to figure that by then Apple knew. Somewhere between those dates I speculate that Apple could have been somewhat more helpful to their partner to reach the agreed-to goals, in order to achieve their own goals, make the most of that up-front risk and position both themselves and their partner for a longer-term success. Instead, they chose to back away.

I'm not saying it was wrong - just that it falls into something of a (space-)gray area. It would fall into this gray area whether we were talking about GTA, Samsung, Foxconn or any other partner. But in GTA's case the results of Apple walking away are obviously more detrimental to the partner than in the cases of those other partners. And fundamentally, choosing to abandon their partner is a choice - based on very sound logic - that they could have landed on differently and saved the day for everyone involved. Hence my conclusion that, IMO, they should not be absolved of *all* blame.

Would that be generous? Yes. Would that be overly generous? Probably. Would it have been the "right" thing to do? That all depends on which viewpoint you take. I'm merely pointing out that no single viewpoint is correct (in an absolute sense) to the exclusion of all others...
Click to expand...

The problem is that for Apple, the risk of putting the Saphire into the phones without backup would be atronomical. You act like both had the same risk? The potential losses on Apple's side of not being able to get the 6+ , 6 out would be tens of billions of dollars of profits, plus if the screen is not up to snuff, big loss of reputation and further big loss of sales and profits.

The phone already are back ordered, so you can imagine that if GTAT couldn't even manage Apple's initial expectations, that they probably couldn't manage the current heightened expectations.
 
Apple killed the goose that lays the golden egg. They got so greedy knowing these guys needed the business, now Apple has no one to get the sapphire from. They deserve this finger in their eye.
 
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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All well and a good, but this just smacks of a poor contract. A good contract is not heavily biased in one direction nor draconian as one might think. A good contract is one that is fair in both directions. It matters not that some one signed it and took the risk, it is still a bad contract...for both parties. Bad contract usually means one thing; bad outcome for both parties. GT have gone out of business and Apple didn't get their sapphire. Seems to me both parties were foolhardy and took unnecessary risks with the contract, not just GT.

Another side issue arising from this is that suspect everyone is paying the price of a sapphire clad iPhone without the sapphire.
 
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