Apple and GT Advanced reach deal to revise bankruptcy filing

Apple and GT Advanced reach deal to revise bankruptcy filing
Apple and GT Advanced have agreed to a divorce. GT Advanced lawyer Luc Despins calls it an "amicable parting of the ways." Both companies are closing up the Mesa factory, which had been designed to churn out sapphire crystal. This material would have ultimately been used to make sapphire displays for Apple's iPhones and iPads. GT Advanced failed to hit a specific milestone, which allowed Apple to hold back a $139 million payment. As a result, GT Advanced's cash level fell under a certain amount that could have allowed Apple to demand immediate repayment of the $440 million it previously loaned to its partner. To block Apple from demanding the money back, GT Advanced called upon the protection of a Chapter 11 bankruptcy filing.

As part of a new agreement between the two companies, a revised bankruptcy filing was made by GT Advanced. This new filing erases from the public record, any explanation for the problems between GT Advanced and Apple. While information is hard to come by, the finishers of the sapphire crystal were supposedly not able to get their yield above 25%. As a result, there was not enough sapphire glass to use for the production of the Apple iPhone 6 and Apple iPhone 6 Plus. Apple was able to salvage much of the crystal glass produced, for the display of the Apple Watch. A hardened-ion material was used instead, on the two new iPhone models.

Meanwhile, Michael Stamer, a lawyer for the GT Advanced bondholders who own debt with a face value of $185 million, said these investors are not happy with the secrecy employed by Apple and GT Advanced to work out this new filing. Because Apple is ready to impose a $50 million penalty on each leak that comes from GT Advanced, the latter is looking to seal all documents related to its filing, and have them removed from court records.

Under Chapter 11, all sides with a financial interest in the case will get to  present a restructuring option to the court. Debt holders are the first to get paid off in Chapter 11, which is the category that Apple belongs to. The tech titan, and the bond holders, could end up getting pennies on the dollar. GT Advanced is said to be shopping 2,039 sapphire furnances from the Mesa factory. The plans are to use some of the proceeds to pay off some of its debt to Apple, although the bondholders wouldn't be too happy with that.

Another issue are the sales of stock made by some GT Advanced executives prior to the bankruptcy filing. While there appears to be nothing illegal done in setting up automatic sales of their holdings, the stock sales brought in millions of dollars before the stock plunged 90%. This gives the appearance that someone knew something in advance, even though the arrangements to sell the stock were possibly made well in advance of any indication that the partnership was running into trouble.

source: WSJ

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11 Comments

1. QWERTYphone

Posts: 654; Member since: Sep 22, 2014

Another example of Apple destroying the American economy and eliminating American jobs. Steve Jobs is burning in hell and I can't wait for the Queen that replaced his corpse to join him there as well. All you i-Sheep are accessories to these crimes.

2. AlikMalix unregistered

"GTA were not able to get their yield above 25%. As a result, there was not enough sapphire glass to use for the production of the Apple iPhone 6 and Apple iPhone 6 Plus. " When u make a contract with someone - u expect that contract to be fulfilled - otherwise that contract is considered breached, this making it void. When u finish high school - you should know a little about economics and how deals are made, so I understand why u dont understand this yet. GT A promised certain amount of product to be fulfilled - they didn't even get close - possibly ruining iPhone 6/6+ launch for Apple. Would u continue doing business with me if I said I'll get you 100 t-shirts done by end of month, but in the end only deliver 25? No. At least Apple is helping them out a bit - I have no idea why, though - GT A screwed Apple big time.

6. VZWuser76

Posts: 4974; Member since: Mar 04, 2010

While I agree with some of what you said, your analogy doesn't hold water. Making t-shirts isn't the same thing as manufacturing sapphire glass. The difference is a T-shirt is a known quantity and the manufacturing process has few surprises to it, sapphire glass is much more complicated. It's a specialty product that companies are still working the bugs out of. If you don't see where I'm going with this, ask your self this question. How many T-shirt manufacturers are there, and how many sapphire glass manufacturers are there? That's a night and day difference. Anytime you're dealing with a relatively new technology, there are going to be issues that can't be forseen. Do you think it was any different in the early days of semiconductors and transistors? Making sapphire glass isn't the issue, making it in that large a size, with the quality needed, in the quantities needed, is. If Apple didn't believe that there was a possibility that those yields couldn't be achieved, then they weren't being realistic. They didn't screw Apple, the realities of sapphire manufacturing in it's current state did. To supply screens or processors for their devices, Apple has how many different suppliers for each of those two components? And they realistically expected this one supplier to handle the glass for all the iPhones they planned to produce? I'm not saying GT didn't make promises they could keep. But for a company as supposedly as smart as Apple, this was pretty stupid.

7. g2a5b0e unregistered

Bingo. This is simple business. GT signed a contract & they couldn't deliver. I get VZW's point, but if GT thought there was any chance this was something they couldn't do, then they should have had certain contingencies built in to protect them. Of course, that doesn't matter. The haters will just blame Apple regardless. It's always their fault. +1

9. VZWuser76

Posts: 4974; Member since: Mar 04, 2010

From what I've read about Apple's contracts, that may not have been possible. They apparently throw their weight around and if you want the contract you don't have much of a choice. It doesn't sound like there's a lot of shot calling from the other side when it comes to Apple's contracts. But that's going off of other deals with suppliers. And as far as that goes, IIRC didn't something similiar happen a few years back when they tried to go with someone other than Samsung for their displays. Apple wanted to cut them out of the supply chain completely at the height of their litigation with them. They were trying to use both LG and Sharp as an alternative to Samsung's screens, but one of them (I believe Sharp) had very low yields and they dropped them and went back to Samsung. And that should illustrate a point. Sharp and LG aren't newcomers to screen technology and manufacturing, and yet they had issues producing on Apple's scale. So why they hell did Apple assume that one company in a field that relatively new and has many production unknowns could handle the job at that scale by itself? No matter what GT told them, some of this is also on Apple as well. Didn't Tim Cook handle securing and dealing with suppliers? He should be an authority on this.

10. Philipand96

Posts: 103; Member since: Jul 12, 2014

????? The thing is VERTU already uses Sapphire glass on some of its phone. The problem is NOT Sapphire Glass itself, it is the expense. It is OK for Vertu as their phones "Ain't Cheap" so there Vertu phones cost typically $5000 plus Corning Gorilla glass is $3 THREE DOLLARS per phone Sapphire Glass is $30 THIRTY DOLLARS per phone So Vertu can either passes on the extra $27 to is customer or take a $27 hit per phone which isn’t going to affect profits My take is this is "show only” if Vertu luxury and all that uses Sapphire Etc Apple premium (PRICE ONLY) devices jumped on the bandwagon The problem was NOT Sapphire Glass itself but Apple wanted a "cheaper version" of Sapphire Glass! GT produced this version on Sapphire Glass (sapphire glass "lite") which is then sent to the finishers. Each piece of Sapphire Glass has to be added to the display manually in a ‘isolation’ room ensuring no dust or any other matter get trapped This is the low yield reported. Afaik NOT a production problem, but may be in part using a cut down version of what Vertu adds to its phone But prior to the display added the sapphire glass must be joined to the display and done manually A higher yield would have resulted if the standard process had been followed Vertu managed to do it I note that Apple did NOT go back to Gorilla Glass using shatterproof glass instead. This is all to protect the profit margin http://www.phonearena.com/news/Did-you-know-that-some-phones-already-use-a-sapphire-screen_id58067

11. VZWuser76

Posts: 4974; Member since: Mar 04, 2010

For the limited number of units Vertu ships and the much higher price tag they charge, they can live with lower yields, Apple is the complete opposite of that situation. You're comparing yields for a company that ships at most in the thousands (if that) vs a company that ships in the tens to hundreds of millions. That's night and day. That's like comparing a Lamborghini Gallardo vs a Honda Civic.

3. MikeG77

Posts: 425; Member since: Nov 24, 2008

Normally QWERTY I'm not a fan of Apple and some of their business practices but in this case Apple has done nothing wrong. GTA had a legally binding contract to produce a certain amount of product and also hit a certain milestone which would have resulted in them receiving the rest of the money. Apple has the legal standing to not pay as GTA violated the terms which is a breach of contract BUT it does not void the original terms the 2 parties had previously agreed upon. I want to also address your comment about Apple destroying the economy and eliminating American jobs. To impy that Apple is ruining the economy or wants Americans to lose their jobs is one the most asinine statements I've heard in a long time and you apparently you don't understand simple economics, business, finance and accounting work. I would suggest you read up on those things and you will have a better understanding of how a contract works. GTA didn't make its target, Apple didn't pay, now GTA is in Chapter 11 BK protection and had to lay off its work force so at the end of the day its GTA's fault not Apple's. I'm just curious how much money Apple this whole situation changed the iPhone production and how much money Apple lost?

4. MikeG77

Posts: 425; Member since: Nov 24, 2008

I'm just curious how much money Apple lost in sales because GTA was not able to meet their production goals?

5. VZWuser76

Posts: 4974; Member since: Mar 04, 2010

And this is why I'm not a fan of investing. The big boys get their money and tell the rest of us that that's the dangers of investing. What they fail to realize is that in many cases, without those investors, they wouldn't be able to start or expand their business.

8. gunnor

Posts: 25; Member since: Oct 22, 2014

the thing that makes me chuckle is that did apple put it eggs all in one basket and go with the one company? was there a contract saying they had to use saphhire glass in the iphone, gta never had a provision for mfg issues or did they? also whats with the 50 million /leak. apple obviously didnt want certain things getting out about their business practices. yes its a golen oppertunity to have a contract with apple but when glass goe south and you dont have an out then we know what happens.

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