Apple withheld $139 million payment to sapphire supplier

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It's the rumor pretty much every Apple analysts and blogger in the world predicted for the last 8 months and everyone got it wrong.
It's the rumor pretty much every Apple analysts and blogger in the world predicted for the last 8 months and everyone got it wrong.

New details have emerged about the surprise bankruptcy protection filing of GT Advanced Technologies, a.k.a. the company that was supplying Apple with its sapphire.

As per the Wall Street Journal, Apple agreed to lend GT Advanced a total of $578 million to help get its large sapphire factory in Arizona up and running, only for Cupertino to withhold the final $139 million payment it was due to make, for reasons which aren’t yet clear, but likely relate to the company’s failure to deliver sapphire to Apple’s satisfaction.

Photo: GT Advanced Technologies
Photo: GT Advanced Technologies

In the “Risks” section of its recent GTAT’s 10-Q, GT the sapphire supplier noted that: “If we are unable to timely ramp up our sapphire materials operations in Arizona, we may not be able meet demand, we may not be eligible to receive future advances under the prepayment agreement, and would be subject to penalties (including payment of cash amounts).”

While investors focused on all the positives a deal with Apple could bring, a lopsided agreement between the two companies meant that GT Advanced was limited in what sapphire it could sell to other companies, but Apple was not obligated to buy a set amount of the material in return.

As Chuck Jones notes in a Forbes report, under the conditions of GT’s deal with Apple, if “GTAT was either not able to produce enough sapphire or at the quality and yield levels to Apple’s satisfaction[,] Apple then had the right to demand immediate repayment of $439 million it had pre-paid to GTAT as part of a $578 million Prepayment Agreement.”

By pinning its hopes and dreams on Apple — and then failing to deliver iPhone touch panels as promised — GT essentially bet the farm on Cupertino, and may have lost everything as a result.

According to KGI analyst Ming-Chi Kuo, GT Advanced’s bankruptcy filing will have no impact on the Apple Watch, but could impact future iPhone models since Apple’s main investment with GT related to iPhone panels.

Despite its shares more than doubling this year due to its increased visibility, GT Advanced revenues actually declined in recent years — from more than $800 million in both 2010 and 2011, to $734 million in 2012, down to $299 million in 2013.

Announced in November 2013, the Apple deal was supposed to revitalize GT Advanced Technologies, but seems to have signalled yet another bump in the road.

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