GT Seeks to Void 'Oppressive and Burdensome' Agreements With Apple, Outlines Sapphire Wind Down Process

[knemonic]

Wait, wouldn't this imply that since Apple is their creditor, and the money they loaned gt was specifically to build that new facility, Apple might be given that facility by the bankruptcy court as compensation, since gt is closing it down anyway?

If so, then apple doesn't even need to buy the company!

 

[Solomani]

Apple is a bully and arrogant. They're like the guy yelling at the gate agent at an airport, "Do you know who I am?!"
Like businesses should kiss their feet because it's a big contract.

Nope, you are completely wrong. Absolutely wrong.

You sound like you support the people who buy overpriced homes during the peak of market when they were insanely priced. And then the economic downturn came, they lost their jobs and could no longer pay for their overpriced homes. If everything was signed as a legal contract, how was that the Bank's fault?

The home buyers are foolish for buying expensive houses that they could not afford, that were above their means. They did not plan to be able to afford that house if they were laid off for a few months, had no reserves.

Banks are not in the business of being charities. If they want to collect from people that have debts, it's what they do. There is nothing evil or good about it. Bank is a business, so "being nice" is not part of the business. It's simply a contractual agreement.

Yes, there are occasions when the Bank might agree to forgive debts and loans. But they have no legal obligation to do so. Banks will sometimes forgive debts/loans because those are cases when they can just cut their losses and move ahead and leave behind the taint of bad debtors. But they certainly don't have to.

 

[BC2009]

GTAT refers to "their equipment", but I am guessing that equipment might soon belong to Apple. I think the court is not going to be too keen on cutting 800 jobs and just giving the assets to GTAT. GTAT has debts to pay (mostly to Apple) and those are usually paid with assets (e.g.: equipment, facilities and patents).

From my understanding in previous, the Arizona facility is owned by Apple and leased to GTAT. It would seem that not only has the GTAT CEO cashed in on $10M in stock in the past year that he now wants out of the debt that he has incurred. Apple only needed GTAT for their patents in sapphire production. If Apple were to get a perpetual patent license and equipment of the Arizona facility out these proceedings, then Apple would be able to operate the Arizona facility on their own without cutting 800 jobs. That is going to sound like a much better option to the court rather than firing people and lining the pockets of some executives who have already lined their pockets with stock sales.

 

[Duane Martin]

Maybe it was "within spec" but Apple chose not to use it after sapphire-screened iPhones didn't pass the drop tests. It sounds like a contract dispute here.

Very interesting hypothesis. Is it based on something you read and can you post a link? I would like to read more about this angle.

 

[CWallace]

The big assumption that nearly everyone is making here is that GTAT couldn't keep up with the production. As MR reported a few weeks before launch, the sapphire deadline was missed by weeks due to something UP the chain from GTAT...

I am of the opinion these reports are the analysts trying to cover their bums for making a wrong guess about the iPhone using sapphire for the display screen covers.

We know the iPhones were in production before Apple sent out the invitations to the Launch Event. If they could have shipped with sapphire covers, Apple would have either delayed the launch announcement or had it and just delayed the pre-orders and shipments those few weeks. I also do not believe Apple could have switched production from sapphire to what we have now in a matter of a couple of weeks. IMO, the iPhone was designed to use the display cover it shipped with.

GTAT was able to provide high quality sapphire, but the Chinese assembly was not able to finish it, so they returned all of the sapphire back to GTAT. In turn, GTAT didn't get paid for this.

Again, this seems to run against Apple's reported actions to help GTAT maintain operating. Also, unless there is very different grades of sapphire for a phone screen and a watch screen or TouchID cover, I would expect this sapphire could be re-tasked for other products and therefore GTAT would have been paid.

When you sign an agreement stating that your sole customer is Apple, produce tons of sapphire for it and held up your end of the bargain, only to find out that Apple changes the manufacturing stream and sends back all of your material, you don't have many options here aside from getting out of the original contract, no?

You could sue for breach of contract.

You're just stuck with a ton of material you can only sell to one person. Unfortunately for GTAT they ceased all other types of work and focused solely on this contract. GTAT has been around for many years (formerly GT Solar, producing sapphire for solar panels and LEDs).

As I understand it, GTAT is primarily a manufacturer of sapphire furnaces. This agreement with Apple was a "side business" where they not only manufactured the furnaces, but also operated them. As such, I do not believe GTAT shut down their furnace manufacturing operations - that they filed C11 (reorganization) as opposed to C7 (liquidation) only reinforces this, IMO.

 

[Amazing Iceman]

Does it seem as if GT wants to get away with not having to pay Apple ever...!?
What about the Furnaces and the rest of Apple's money??

 

[fredfnord]

It constantly amazes me...

...how many people are willing to comment on things like this one way or the other. 'Apple is bad!' 'GT is bad!' When you haven't the faintest idea what is happening here.

Sure, a very small part of the contract is public knowledge. The vast majority of it isn't. How could you possibly know who is in the wrong here? It's quite possible that GT signed an agreement they couldn't honor, and then decided to file for bankruptcy. (Either with or without some judicious pre-bankruptcy corporate looting.) It's equally possible that Apple is doing something obnoxious, or even borderline shady. (I.e. they extracted harsh terms for if GT could not meet their obligations, and then ensured that GT could not meet their obligations. I don't think it's the most likely thing to have happened, but it is entirely possible.)

This will all come out in the wash. Why do people insist on pointing fingers on the basis of zero information, instead of waiting to see what the actual facts are?

 

[Zinthar]

Wait, wouldn't this imply that since Apple is their creditor, and the money they loaned gt was specifically to build that new facility, Apple might be given that facility by the bankruptcy court as compensation, since gt is closing it down anyway?

If so, then apple doesn't even need to buy the company!

Based on the initial Chapter 11 filing by GTAT, it seemed to imply that Apple was a secured creditor, because they were not among the list of unsecured creditors. Typically, that means some property of GTAT's is collateral for the loan Apple extended to GTAT.

So it's possible that Apple will end up with much (or all) of the property involved in the sapphire production process. Whether they would want to take on any part of that venture, though, is uncertain. Maybe they could sell the equipment to Corning or another sapphire maker?

 

[divideby]

Very interesting hypothesis. Is it based on something you read and can you post a link? I would like to read more about this angle.

I will jump in here again...

They could have produced something in spec but the manufacturing process failed upstream.

"According to Margolis' sources, the issue was not GT's production, as the company is said to have been steadily shipping out sapphire from its factory in Mesa, Arizona. The issue appears to have occurred in the next step in the supply chain, where finishers in China struggled with yield issues turning the sapphire into display covers."

https://www.macrumors.com/2014/09/11/sapphire-display-iphone-6-missed/

In this case, GTAT would have met contractual obligations but Apple returned sapphire due to an upstream issue and put it on hold. In the meantime, GTAT can only sit on it because the agreement was that they could only sell to Apple... so they sit on it while incurring all the employment and manufacturing costs.

 

[coolfactor]

Apple is a bully and arrogant. They're like the guy yelling at the gate agent at an airport, "Do you know who I am?!"
Like businesses should kiss their feet because it's a big contract.

You don't know that. You are only speculating based on Apple's famously high standards (which are a good thing!). Look at the world under Microsoft's dominance... a world filled with frustrating technology and reliant on a population of "Microsoft-certified technicians" and IT departments.

GT signed a contract. Apple financed the deal. GT burned through the cash, and still failed to deliver a finished product. GT's CEO takes home a pretty penny and then announces bankruptcy, to Apple's surprise.

Remind me again how Apple is at fault here?

 

[Windlasher]

.
Apple's PR is as bad as Microsoft's.

Who cares what happened, Apple looks like a fool because they can't speak to the situation at all. They are like "Uhhhh, whaaa?"

Why would they show their hand before they get in front of a judge. As I am sure you have heard a million times.... "WE DONT COMMENT ON ONGOING LITIGATION."

 

[UnfetteredMind]

Both Apple and GTAT are to blame for this but mostly Apple. Apple loves to offload technical and financial risk onto other parties and did that to the fullest here. GTAT got onboard, betting on the upside of having Apple as a partner and steady business. If GTAT's products meet spec and third parties encounter difficulties, that's not on GTAT - it's Apple's responsibility. Then, Apple, with the deepest pockets, pulls the rug from under GTAT and acts surprised when the business with the shallowest pockets and wholly dependent on this arrangement (which Apple deliberately created) is screwed.

Moral of the story - don't do business with Apple, as they set their contracts so that their screw ups can take you down. Not exactly great for their reputation.

So you've seen a lot of Apple's contracts with suppliers, have you? What other suppliers have been destroyed by these one-sided Apple contracts? I can't recall any so I'd love to go read about them.

Would you sign a contract that allowed Apple to reject your product based on issues after your production was completed, accepted by Apple and turned over to them? Considering the consequences of failure (pretty much destroying your company), that seems pretty illogical.

 

[thelatinist]

The big assumption that nearly everyone is making here is that GTAT couldn't keep up with the production. As MR reported a few weeks before launch, the sapphire deadline was missed by weeks due to something UP the chain from GTAT:

https://www.macrumors.com/2014/09/11/sapphire-display-iphone-6-missed/

"According to Margolis' sources, the issue was not GT's production, as the company is said to have been steadily shipping out sapphire from its factory in Mesa, Arizona. The issue appears to have occurred in the next step in the supply chain, where finishers in China struggled with yield issues turning the sapphire into display covers."

This is exactly what I came here to write. While we don't know everything, the information that has leaked seems to suggest that it wasn't GT's production that was the issue but Apple's manufacturing partners' inability to perfect the complex process of milling and polishing the raw material into the thin sheets needed for display covers. None of this changes the fact that GT seems to have gambled on a contract that required performance on their part but did not guarantee a return; but it certainly undercuts the moral outrage that some on here seem to be feeling: I see no evidence that GT over promised and failed to deliver.

 

[businezguy]

The plan given to the bankruptcy court says they have submitted a plan to "wind down operations" at the facility. Doesn't sound like they plan on using the factory or the equipment going forward.

You do realize that sometimes people say things they don't mean, right? They don't *really* intend to "wind down operations". They intend to "wind down operations" and then mysteriously find money from another company providing a higher profit margins, and go ahead with operations. C'mon, you can't be that naive. I can tell you right now, they probably planned this whole thing from the beginning. This is the way a sociopath runs a business, and they'll need to take it up the arsehole as an example to the industry as a whole.

This isn't about "morality", it's strictly business, just like in the mafia. This company must be forced to uphold their contract in one form or another, even if ownership is transferred to Apple, or management is removed.

 

[MellowFuzz]

Except for the hundreds of millions Apple forked over and may not get back

True - that's their bet on a sapphire technology that according to them, isn't worth proceeding with. Either they eat that, or sweep up GTAT stock for a pittance.

 

[CWallace]

Both Apple and GTAT are to blame for this but mostly Apple. Apple loves to offload technical and financial risk onto other parties and did that to the fullest here.

And that is because Apple lacks the technical and logistical resources to design, engineer and manufacture every step of their products.

It's no different from most consumer electronics companies.

GTAT got onboard, betting on the upside of having Apple as a partner and a stable future revenue stream. If GTAT's products meet spec and third parties encounter difficulties, that's not on GTAT - it's Apple's responsibility. Then, Apple, with the deepest pockets, pulls the rug from under GTAT and acts surprised when the business with the shallowest pockets and wholly dependent on this arrangement (which Apple deliberately created) is screwed.

Except Apple doesn't financially benefit from taking that course of action.

If GTAT successfully shuts down operations, Apple needs to find a new supplier of sapphire just as they are preparing to launch a new wave of high-volume products (new iPads and the Apple Watch) that requires sapphire - which is the reason they partnered with GTAT in the first place.

That means they will need to spend even more money to "buy themselves to the front of the line" with other suppliers, who will need that money to pay the penalties they will incur in breaking their own contracts with their smaller customers to supply Apple.

Something that is not exactly great for their reputations, either...

 

[brendu]

Apple is a bully and arrogant. They're like the guy yelling at the gate agent at an airport, "Do you know who I am?!"
Like businesses should kiss their feet because it's a big contract.

Yeah they should just let their partners do whatever they want despite owning apple over $500,000,000.

 

[divideby]

You could sue for breach of contract.

I think that's what they're going to do, they just need to stop accruing debt in this process hence Chapter 11. This was in the OP:

"GT believes it will be able to pursue further claims against Apple, but is unable to do so at this stage of the Chapter 11 bankruptcy proceedings, and so has asked that the agreements be voided while maintaining its right to pursue future claims against Apple related to the agreements."

 

[PeteY48]

Here's what GTAT says the agreements are

First off, there is no loan to GTAT. What Apple has with GTAT is a Master Development and Supply Agreement, and a Prepay agreement. The MDSA "specifies our minimum and maximum supply commitments, Apple has no minimum purchase commitment under the terms of the MDSA."

In the "Prepayment Agreement with Apple pursuant to which we will receive, subject to certain conditions, $578 million, which we refer to as the Prepayment Amount, in four separate installments, as payment in advance for the purchase by Apple of sapphire material. The Prepayment Amount must be used to purchase ASF systems and related equipment principally for use at our Arizona facility. " GTAT has received three of those payments to date.

The 10-K continues "We are required to repay the Prepayment Amount ratably over a five-year period beginning in January 2015, either as an offset to amounts due from Apple for the purchase of sapphire material under the MDSA or as a direct cash payment to Apple. Our obligation to repay the Prepayment Amount may be accelerated under certain circumstances including in the event the Company does not satisfy certain financial metrics. Our obligations under the Prepayment Agreement are secured by (i) the assets held by GT Equipment Holdings LLC (a wholly-owned subsidiary of the Company and the legal owner of the ASF systems and related equipment used in the Arizona facility) and (ii) a pledge of all of the equity interests of GT Equipment Holdings LLC. "

So, to sum up there is no loan. There is a prepayment agreement secured by physical and equity assets. Apple has minimal exposure here. If it all goes bonkers Apple owns the GTAT subsidiary that runs the Arizona plant (including any inventory they may have) plus gets some $$$ from GT Equipment Holdings

And for those of you who want to read the 10-k (page 57) it can be located here: annual report

 

[MellowFuzz]

You do realize that sometimes people say things they don't mean, right? They don't *really* intend to "wind down operations". They intend to "wind down operations" and then mysteriously find money from another company providing a higher profit margins, and go ahead with operations. C'mon, you can't be that naive. I can tell you right now, they probably planned this whole thing from the beginning. This is the way a sociopath runs a business, and they'll need to take it up the arsehole as an example to the industry as a whole.

This isn't about "morality", it's strictly business, just like in the mafia. This company must be forced to uphold their contract in one form or another, even if ownership is transferred to Apple, or management is removed.

Wrong. 1) Not winding down is continually burning cash. 2) Morality and business are not entirely separate - that's why the justice system has such involvement in business affairs like this.

 

[KSpider]

Time for a hostile takeover at a super cheap share price

 

[cfedu]

You don't know that. You are only speculating based on Apple's famously high standards (which are a good thing!). Look at the world under Microsoft's dominance... a world filled with frustrating technology and reliant on a population of "Microsoft-certified technicians" and IT departments.

GT signed a contract. Apple financed the deal. GT burned through the cash, and still failed to deliver a finished product. GT's CEO takes home a pretty penny and then announces bankruptcy, to Apple's surprise.

Remind me again how Apple is at fault here?

Do you have any proof GT failed to deliver?

Remind me again how you know anything about what happened?

 

[KSpider]

Do you have any proof GT failed to deliver?

Remind me again how you know anything about what happened?

All the reports were yield was too low... so yah

 

[emagenasian]

Looks like they're chafing under the agreement and have been unable to keep afloat, maybe if apple used them for the iPhone 6, this wouldn't have been an issue.

Mike, are you the one from x[clan]? x[flynn]?

 

[genovelle]

I can understand the part that the contracts are oppressive, because Apple has no obligations to buy their sapphire if they don't think it's good enough or meet their deadlines, but GT has not right to sell the sapphire to someone else.

Signing such a contract was a big gamble to begin with, now they regret it and blame all their misery on Apple.

Well when you can't even afford the equipment to make the product and your customer prepaid for a large sum to cover the leased equipment, why would you expect them to be able to sell to someone else. Technically it's Apple's equipment.