In its first public comment Wednesday following a totally unepxected bankruptcy filing of its supplier GT Advanced Technology earlier this week, Apple now says it was taken aback by such turn of events while confirming its priority going forward will be preserving jobs at the Mesa, Arizona plant that GT had agreed to run on Apple’s behalf.
Company spokesman Chris Gaither said in a written statement to Reuters, The Wall Street Journal and other major outlets that “we are focussed 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”.
After purchasing a 1.4-million-square-foot facility in Arizona from a solar-panel producer for $113 million last year, Apple basically leased the site to GT Advanced. The idea was that Apple would own the plant and the equipment while GT would focus on component production.
But up until that point, GT was only known as a leading maker of sophisticated furnaces used to grow synthetic sapphire. According to the terms of the multi-year agreement, Apple would prepay $578 million — contingent on meeting certain technical requirements — for the cutting-edge equipment.
GT agreed to start repaying Apple beginning 2015. Crazypants analysts expected GT’s 2014 revenue to grow fifteen fold on the heels of the Apple deal alone.
The problem is, GT as a equipment manufacturer has never dealt with Apple in the past and it admittedly had no experience whatsoever running a large-scale mass production that can match Apple’s insane needs.
Unfortunately, the huge gamble has failed to pay off.
Suffering low yields and ongoing manufacturing woes, GT was unable to ramp up production of sapphire, prompting Apple to reportedly withhold the last $139 million payment, enough to push GT into financial distress.
As a result of these miscalculations and the fact that Apple unveiled new iPhones with heavy-duty Gorilla Glass glass screens, rather than sapphire, GT filed for Chapter 11 bankruptcy protection on Monday, a move designed to allow the firm to continue normal operations and meet its obligations until it reorganizes its business and negotiate new financing arrangements with its creditors.
“Today’s filing does not mean we are going out of business; rather, it provides us with the opportunity to continue to execute our business plan on a stronger footing, maintain operations of our diversified business, and improve our balance sheet,” GT Advanced Chief Executive Tom Gutierrez said in a news release.
Waisuke Wakabayashi of The Wall Street Journal reported that Apple opted against using the precious gemstone, whose hardness is second only to diamond, after the material “proved brittle” and cracked in testing.
As of September 29, GT had about $85 million in cash.
Shares of GT nosedived 90 percent on the news.
The bankruptcy filing should’t disrupt Apple’s supply chain as the California firm has been sourcing scratch-resistant sapphire material for the Touch ID sensor and the iSight camera lens from other suppliers.
And even though two of the three distinct editions of the Apple Watch, due in early 2015, do feature a sapphire coating to protect their Retina screen, KGI Securities analyst Ming-Chi Kuo says GT’s bankruptcy won’t affect Apple Watch production as Apple is already working with a handful of other sapphire ingot (or cast) suppliers including Hansol and Harbin Aurora Optoelectronics.
For what it’s worth, the Mesa facility was supposed to create more than 700 high-quality jobs in the first year and “generate significant capital investment” going forward, as per The Arizona State Governor Janice K. Brewer’s November 2013 press release.
In addition, the project was expected to benefit the state by producing approximately 1,300 construction and other associated jobs.
Is Apple going to now buy GT for cheap and run the plant itself, do you think?
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