Apple sapphire supplier GT Advanced files for bankruptcy protection
GT's filing, which sends company's stock tumbling about 90 percent, surprises the market and suggests a breakdown in its relationship with Apple.
GT Advanced Technologies said Monday it has filed for Chapter 11 bankruptcy protection, less than a year after it signed a $578 million deal to supply Apple with sapphire goods.
Shares of GT tumbled nearly 90 percent to just over $1 on Monday trading.
"Today's filing does not mean we are going out of business," Tom Gutierrez, GT's chief executive, said in a statement Monday. "Rather, it provides us with the opportunity to continue to execute our business plan on a stronger footing ... and improve our balance sheet."
The company had seen its stock surge after it inked a $578 million deal with Apple in November 2013 to create sapphire products for the tech giant. While many industry watchers and investors had expected those products to be displays for the next iPhone, they were disappointed to find that Apple stayed with a glass display when it unveiled the new iPhone 6 last month. Since then, GT's stock has fallen as some analysts expected the company to cut its financial guidance for the year. The Apple Watch smartwatch, which is due to start selling next year, will include a sapphire display in certain models.
As part of the 2013 deal, Apple agreed to provide GT with a prepayment of $578 million, with the final $139 million installment expected by the end of this month. GT has used the money to develop a 1.3-million-square-foot facility in Mesa, Ariz., to create sapphire products using about 700 employees. GT is required to repay that money over five years, starting in 2015.
"The bankruptcy filing stunned the market. I think it took everybody by surprise," said Raymond James analyst Pavel Molchanov. He added that the filing suggests there was a "dramatic breakdown" in the relationship between GT and Apple, with Apple appearing to have cut off GT from funding.
Rumors of a sapphire iPhone 6 display swirled for much of this year, signaling a new threat to Corning, which has supplied its Gorilla Glass to the iPhone since the Apple smartphone was first introduced. Sapphire has been seen as a potentially superior material to glass, since it is more scratch-resistant. Corning has continually criticized sapphire, saying it is costlier, heavier and more brittle than its Gorilla Glass.
GT's bankruptcy protection filing could prove to be a benefit for Corning for now and creates uncertainty over Apple's plans for sapphire goods, particularly how it will supply sapphire for its Apple Watch. However, GT's statements show that it plans to re-emerge from bankruptcy protection and hopes to continue as a business.
GT said in a press release that it expects a US bankruptcy court in New Hampshire to allow it to continue to "conduct business as usual" while it develops a reorganization plan. The company added that as of Sept. 29, it had approximately $85 million in cash. It's now seeking debtor-in-possession financing, which would provide the company with additional funds.
A Corning spokesman declined to comment on GT's bankruptcy protection filing, though added, "Gorilla Glass is the industry standard for tough, thin cover material. We continue to believe it is the best material for a broad range of markets." He said Corning remains on track to deliver its next generation of Gorilla Glass by year's end.
GT's stock slumped from about $17 in early September -- just before Apple unveiled its new iPhone 6 -- to about $11 on Friday. A few days after the iPhone 6 announcement, GT said it would provide a business update, which it then delayed to this week. The company warned that its stock may be halted temporarily due to the bankruptcy protection filing.
Representatives from GT and Apple didn't respond to requests for comment.
Updated, 9:55 a.m. and 10:40 a.m. PT: Adds comments from Corning and a Raymond James analyst.