Ondřej Holzman "We're done, we've filed for bankruptcy." He surprised in that way Apple On October 6, the head of GT Advanced Technologies, a company that was supposed to supply sapphire in bulk to Cupertino, appeared to be a partner AppThere are only two paths: massive success or total failure.
Courtship between Applema GT seems to have gone something like this: "Here are the conditions that you either accept or you will not produce sapphire for us." GT eventually got used to the potential billions in profits and agreed to completely unfavorable terms. But the exact opposite happened before bathing in money - the company's bankruptcy. This is a harsh reality that you have to deal with if you connect with Applem.
A perfect illustration is provided by the current case of GT Advanced Technologies, which points to a millimeter-precise, albeit very roughly adjusted, supply chain. Apple He is a whiz in it and from a position of strength he can force his partners to agree to conditions that are very advantageous for him, even if in the end they are often difficult to meet. Then the slightest hesitation is enough and it's over. As soon as the expected results do not come, Tim Cook He looks away and looks for another, more "reliable" partner.
Take it or leave it
It was the current executive director of the Californian company, who in previous years, still in the role of operations director, assembled a perfectly functioning chain of manufacturers and suppliers of all kinds of components for apple products, which then Apple can reach customers in just a few tens of hours or a few days after their presentation. It is necessary to make everything work, and in Cupertino they have always kept all contracts and partnership obligations under wraps.
[do action=”citation”]The whole plan was doomed from the start to a tragic end.[/do]
Only a year ago, we were able to have a unique look into the kitchen of this successful business. Apple in November 2013, he signs a giant contract with GT Advanced Technologies, looking to build a giant sapphire factory while creating hundreds of jobs in Arizona. But let's fast-forward just a year: it's October 2014, GT is filing for bankruptcy, hundreds of people are out of a job, and mass sapphire production is nowhere in sight. The quick end to a potentially profitable collaboration for both parties is not so surprising in the final reckoning, as documents released in the bankruptcy proceedings will show.
Pro Apple these are more or less just inconveniences. While in Asia, where the vast majority of its suppliers operate, they operate quietly and out of the spotlight, the alliance with New Hampshire-based GT Advanced Technologies has been scrutinized by the media and the public from the start. The two companies have a really bold plan: to build a giant factory right in the United States that will produce 30 times more sapphire than any other factory in the world. At the same time, it is one of the hardest materials on earth, which is produced synthetically in furnaces heated to approximately two thousand degrees Celsius and is five times more expensive than glass. Its subsequent processing is similarly demanding.
But the whole plan was doomed from the start to a tragic end. Terms that you Apple dictated, they were practically unenforceable, and it is a great wonder that GT managers could even sign such contracts.
On the other hand, this only confirms the negotiating skills Applu and also his strong position, which he can fully use to his advantage. In the case of GT, he transferred Apple practically all responsibility on the other side and he himself could only profit from this partnership. Maximum profit, that's all the managers in Cupertino care about. They refuse to debate the fact that their partners are operating on the brink of bankruptcy. In negotiations with GT, they reportedly stated that these are the standard terms and conditions that he has Apple concluded with other suppliers, and the whole matter was not discussed further. Take it or leave it.
If GT didn't approach them, he would find himself Apple another supplier. Although the conditions were uncompromising and GT, as it later turned out, brought destruction, the management of the company operating mainly in the field of solar cells by that time bet everything on one card - an attractive cooperation with Applem, which brings enormous risk, but also potential billions in profits.
A dream on paper, a fiasco in reality
The beginning of the American alliance, which would Apple also confirmed his words about the intention to return production to the United States, he didn't look so bad - miniat least not on paper. GT, among other activities, manufactured furnaces for the production of sapphire and Apple first noticed it in February 2013, when it showed sapphire glass on the iPhone 5 display, which was more durable than Gorilla Glass. At the time Apple used sapphire only to cover the sensor Touch ID and camera lenses, but it still consumed a full quarter of all sapphire produced worldwide.
In March of the same year, GT Applu announced that it was developing a furnace that could produce sapphire cylinders weighing 262 kilograms. That was double the volume produced so far. Production in larger sizes would obviously mean more displays and a significant reduction in prices.
According to documents released in the bankruptcy proceedings, he had Apple originally interested in purchasing 2 furnaces in which to produce sapphire. But at the beginning of the summer there was a fundamental turn, because Apple could not find a company that would produce sapphire for him. He approached several of them, but the representative of one of them stated that under the conditions dictated by AppIf only his company would not be able to profit from sapphire production.
Apple therefore turned directly to GT to produce the sapphire itself in addition to the furnaces, and since he also reportedly had a problem with the 40% margin that GT demanded for the furnaces, he decided to change tactics. He now offered GT a loan of $578 million, for which the New Hampshire company would build 2 furnaces and operate a factory in Mesa, Arizona. Although the contracts contained many unfavorable conditions for GT, such as not being allowed to sell sapphire to anyone other than Applu, the company accepted the offer.
Benefit Applu
GT was experiencing a decline in its solar cell business in particular, so sapphire production seemed like an interesting option to continue making money. The result was a contract signed on the last day of October 2013. Since the agreement with Applem, GT promised to more than double its revenue in 2014, with sapphire accounting for roughly 80 percent of its annual revenue, up from a fraction of that until now. But problems appeared right from the start.
[do action=”citation”]A single large cylinder of sapphire took 30 days to make and cost around 20 thousand dollars.[/do]
Apple he offered less than GT had planned for the sapphire and refused to budge, leaving GT to sell the sapphire to him at a loss. In addition, from the contracts just signed, it appeared that he would be fined $650 if he let any of the $200 furnaces be used by another company, a $640 fine if he sold the 262-kilogram crystal to a competitor, and a $320 fine for each late delivery of the crystal ( or $77 per millimeter of sapphire). Apple at the same time, he could cancel his order at any time.
GT faced an additional $50 million fine for each breach of confidentiality, i.e. disclosure of contractual relationships between the two parties. Apple again, there was no such ban. To GT's numerous questions, concerning clearly in favor of AppWhen asked about the playing points, the Californian company replied that these were similar conditions to those of its other suppliers.
The contract was signed just days after the first 262-kilogram single-crystal sapphire emerged from GT's furnace. However, the cylinder was so cracked that it was unusable. GT, however, Applu claimed that the quality would increase.
For mass production of the sapphire, GT immediately hired 700 employees, which happened so quickly that by the end of this spring, more than a hundred of the newest members of the team did not really know who to answer to, as the former manager revealed. Two other former workers said attendance was not monitored in any way, so many took time off arbitrarily.
In the spring, GT managers approved unlimited overtime to fill the furnaces with sapphire-making material, but at that point, not enough furnaces had been built yet again, resulting in chaos. According to two former employees, many people didn't know what to do and just walked around the factory. But in the end, a much bigger problem was the very seed of the whole collaboration – the production of sapphire.
A single large cylinder of sapphire took 30 days to make and cost about $20 (over 440 crowns). According to sources familiar with the operation AppMoreover, more than half of the sapphire cylinders were unusable. A special “burial ground” was allegedly created for them at the Mesa factory, where the unusable crystals piled up.
GT COO Daniel Squiller said in the bankruptcy filing that his company lost three months of production due to power outages and delays in factory construction. He was to ensure the supply of electricity and the construction of the factory Apple, but he told GT's creditors that the company went bankrupt because of mismanagement, not power outages. GT responded to this statement that these were deliberately misleading or inaccurate comments.
Sapphire production is failing
But something other than just power outages or bad management led GT to bankruptcy. At the end of April Apple suspended its last installment of the $139 million loan because GT, it said, had failed to meet the sapphire output quality. In the bankruptcy proceedings, GT then explained that Apple constantly changed the material specifications and that it had to spend $900 million of its own money to operate the factory, more than double the amount borrowed so far from Appyou.
In addition, GT officials claim that it also bears responsibility for the end of the Arizona plant Apple and the city of Mesa. The first phase of the construction was only completed in December 2013, which left only six months for full operation. At the same time, the already mentioned power outages should have caused a fundamental three-month outage, when Apple allegedly refused to provide backup power sources.
That's why on June 6, GT CEO Thomas Gutierrez met with two vice presidents Applu to inform them that there were major problems in sapphire production. He submitted a document titled “What Happened,” which listed 17 problems, such as improper handling of the furnaces. In the letter AppThe creditors are also told that Gutierrez practically came to Cupertino to accept his own defeat. After this meeting, GT stopped producing 262-kilogram crystals and focused on 165-kilogram ones to make the process successful.
When the production of such a sapphire cylinder was successful, a diamond saw was used to cut 14-inch-thick bricks in the shape of two new phones, the iPhone 6 and iPhone 6 Plus. The bricks would then be cut lengthwise to create a display. Neither does the GT Apple although they never confirmed whether sapphire was actually intended to be used in the latest generation of iPhones, but considering the volumes of sapphire that Apple in short terms he applied, it is very likely.
But to make matters worse, in August, according to one former employee, another big problem appeared in addition to the production itself, because 500 sapphire ingots suddenly went missing. A few hours later, employees learned that the manager had sent the bricks to be recycled instead of being cleared, and if GT hadn't been able to get them back, hundreds of thousands of dollars would have been lost. Even at that moment, however, it was clear that sapphire would not make it onto the displays of the new "six" iPhones, which went on sale on September 19.
Apple but he still did not give up the sapphire and wanted to continue to get as much of it as possible from the furnace in Mesa. In a letter to creditors, he later stated that he had received only 10 percent of the promised volume from GT. However, people close to the GT operation report that Apple behaved very inconsistently as a customer. Sometimes he accepted bricks that he had rejected a few days before due to low quality and so on.
We're done, we're broke
In the first week of September this year, GT announced Applu that it had a major cash-flow problem, and asked its partner to pay it the last 139 million shillings of the loan. At the same time, GT allegedly wanted Apple since 2015, he started paying more money for sapphire supplies. Apple was supposed to offer GT $1 million from the original $100 million on October 139 and postpone the repayment schedule. At the same time, he was supposed to offer a higher price for sapphire this year and discuss a price increase for 2015, in which GT could also open the door to selling sapphire to other companies.
[do action=“quote”]GT managers are AppThey were afraid of him, so they didn't tell him about the bankruptcy.[/do]
The two sides agreed to discuss everything in person on October 7 in Cupertino. However, shortly after 6 a.m. on October XNUMX, the vice president received a phone call Applu phone. On the other end was GT CEO Thomas Gutierrez, who gave him the bad news: his company had filed for bankruptcy 20 minutes earlier. At that moment, apparently in AppThis was the first time they had heard about the plan to declare bankruptcy, which GT had already managed to carry out. According to sources from GT, its managers were afraid that they would be Apple he was trying to thwart the plan, so they didn't tell him ahead of time.
COO Squiller claims that filing for bankruptcy and filing for creditor protection was the only way for GT to get out of its contracts with Appleshe had a chance to save herself. It is with Squiller, together with the executive director Gutierrez, that it is also being discussed whether this scenario was planned for a long time.
The top management certainly knew about the financial difficulties, and it was the two mentioned GT officials who began systematically selling their shares a few months before the bankruptcy was announced. Gutierrez sold the stock in early May, June and July each, Squiller then disposed of more than a million dollars worth of stock after Apple refused to pay the last part of the loan. GT, however, claims that these were planned sales and not ill-considered, impulsive steps. Nevertheless, the actions of GT managers are minislightly debatable.
After the announcement of bankruptcy, GT shares rocketed to the bottom, which practically wiped the company worth almost one and a half billion dollars from the market. Apple announced that it intends to continue to deal with sapphire, but it is not yet clear when it will resort to its mass production again and if it will even happen in the next few years. The published documents from the GT Advanced Technologies case may make him uncomfortable and make it difficult to negotiate with other potential partners, who will now be much more cautious after the tragic end of the sapphire producer. That was also the reason why Apple he fought prominently in court to have as few secret documents as possible published.
Nice article, thank you for it.
Why on earth did they open a sapphire factory with no experience and still agree to a disadvantageous contract? I don't like the conditions, I won't accept them. Dot. That Apple he also collected garbage, and the second time he didn't is quite understandable. As soon as they are short of the sapphire they are supposed to receive according to the contract, they will try to use what they can.
Super written. Even for a financial illiterate like me, understandable. Keep going, Ondřej :-)
VAT Apple I suddenly don't like it anymore.ipadá, like a sunny company full of tech enthusiasts and philanthropists (red) (green) (rainbow). In the end, it's always about business..
You were really naive.
Rather messy..
So let's sum it up: I will sign someone to produce something that I can't do in a quantity that I don't have people for.... And the one with whom I will sign the contract after I can't do it is the evil dictator who is to blame?
On the other hand - I have to ensure the production of something I want and I see that the partner I am dealing with may not be very solid. (Evidenced, for example, by management selling shares before the crash) I fully understand the approach Apple.
The most important question - we don't have sapphire on iPhones because GT didn't have time to make it or because Apple in the end he didn't want to?
This "we will go to death" and "profit will be ours" principle will sooner or later get into huge problems.
1) the supplier will reduce quality to be able to produce at the dictated price Applem (shows a huge level of scrap iPhone 6 and other products App(lu)
2) when the capacities are full, the supplier will choose partners (customers) who will let them earn and will have an equal relationship. Apple so he won't have de produce
3) a few bad PRs and all the charm and fandom will start to disappear and sales will drop by tens of %
What is this huge waste rate? How much %?
this can hardly be answered, since these figures APPLE, as far as I know, it doesn't publish it, but just look at ipPone.forum.cz where repeated advertising is no exceptionmacand iP6 – even 3-4x!!!
That's my argument... It's probably not even worth commenting on.
I see it as the truth is somewhere in the middle and each side portrays it in a better light for themselves, but:
1/ similar conditions exist everywhere...
2/ Apple invested / provided money for the development and production of something that no one has yet produced with the specified parameters, so why should he agree to the fact that GT would potentially sell sapphire e.g. Samsungu?
3/ the quality was agreed and the volume was agreed, which could not be fulfilled, so as I understand it, he started Apple take at least half the volume of sapphire
4/ everyone swears Applu, that he is no longer innovative and does not make a revolution. I see it as another revolution standing and falling on sapphire, minismall in the use of this material on large surfaces, I guess that Apple he has to do something with it at least in pripade Watch, when it didn't work, maybe on iPhone 6 ...
Unfortunately, the article does not contain any further information.mace, such as interference Appinto the production process, into the tools and other parts of the whole process. I don't know if it was written here in another article or on another server, but if it's only half true, it's quite a strange behavior. Well, if someone tells me to make a product for them with certain parameters and in a certain time and then tells me that I have to make it using a specific procedure and I tell him that if I do as he says, the product won't be as good and I won't deliver it on time and the customer still insists on his way, something is wrong. Personally, I find it suspicious and somehow I have the feeling that maybe it wasn't a sapphire after all, or just a sapphire. It's all just terribly extreme and I have the feeling that Apple he didn't have much interest in it going well. He wanted to test something and not at his own expense, in addition to the participation of the City/State itself. Well, that's just speculation.
The question is who loaned GT AT that money. Yes Apple, so it's a double disaster for Apple. Not only for money, but also because everyone now knows how to negotiate Apple. GT managers earned a share on the sale Applu remained a factory with employees that it does not need. I just don't understand why they first built more than 2000 ovens when they didn't have the production technology mastered. Maybe within a year I will be able to produce that glass in sufficient quantity and at reasonable costs, and the next generation of iPhones will have sapphire glass.
Apple He won't lose any money, GTAT has to pay him everything. He will sell the furnaces that were never owned to pay off the debt. Applu. Neither the employees now AppThere were no more, everything was under the administration of GTAT, which released them.
Well, if GTAT declares bankruptcy, it's because it has higher debts than its entire assets. Furnaces can only be sold by whoever buys them, if they do not know how to make sapphire glass in them. And they also have quite a lot of these ovens. Who would ever need that much sapphire?
I read somewhere that they didn't fire employees and Apple took over the factory and the employees.
Here I am looking at the analyst herself..