Date
18 November 2017
GT Advanced was supposed to make scratch-resistant sapphire glass exclusively for Apple's devices, but which the technology giant was under no obligation to buy. Photo: Bloomberg
GT Advanced was supposed to make scratch-resistant sapphire glass exclusively for Apple's devices, but which the technology giant was under no obligation to buy. Photo: Bloomberg

GT Advanced bankruptcy offers warning to Apple suppliers

GT Advanced Technologies’ surprise bankruptcy filing earlier this week highlights the risks taken by Apple suppliers in pursuit of financial windfall.

Companies vying to supply components for hundreds of millions of iPhones and iPads have often struck seemingly lopsided deals with Apple, Reuters said, citing analysts and industry insiders.

A deal with the technology giant can multiply a supplier’s revenues and help it win other customers, it said. The risks are huge, however.

In November, GT Advanced struck a deal with Apple to make scratch-resistant sapphire glass exclusively for the iPhone maker, but which the technology giant was under no obligation to buy, according to the news agency.

In the deal, Apple would provide a prepayment of about US$578 million to help install furnaces and other gear in an Arizona factory, which is owned by Apple and set to employ more than 700. Apple would then be paid back over five years starting 2015.

The lump sum would be paid in installments contingent on GT Advanced meeting unspecified operational targets.

Apple’s arrangement to help finance GT Advanced’s new factory is not unusual, Reuters said. In 2011, Apple invested around US$1 billion in an LCD factory operated by Japan’s Sharp to make panels for the iPhone 4. Sales of the phone were slower than predicted, and Sharp was forced to temporarily halt production.

“Having an exclusive factory for one customer means you don’t have the same reassurance as producing parts in response to demand,” Reuters quoted a source as saying.

“The volume [produced by Apple] is very high so it can bring the factory to 99 percent of capacity, but if there are no orders then the factory will lie idle,” the source said.

CRT Capital analyst Kevin Starke surmised that Apple, in forgoing sapphire glass for iPhone 6, had effectively dealt a financial blow to GT.

“We could speculate that some milestone or other requirement laid out in the operative documents has been broken or become the topic of a dispute between the parties,” Starke wrote in a note to clients.

Industry executives and analysts said GT’s bankruptcy should serve as a warning to other companies.

“You swallow the Apple order, but it may not taste sweet,” said a person whose company supplies Apple.

“It is like using Apple to build your resume. Once you supply for Apple, you use that to find more customers and you can diversify.”

Apple said on Wednesday it was surprised by GT’s bankruptcy filing.

“We are focused on preserving jobs in Arizona following GT’s surprising decision and we will continue to work with state and local officials as we consider our next steps,” Apple spokesman Chris Gaither said in an email.

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CG

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