Tech Industry

Six things we learned from Apple's spat with GT Advanced

Bankruptcy-court papers from the synthetic-sapphire maker offer a rare glimpse into Apple's dealings with suppliers.

Apple hoped to put sapphire in millions of its products, but just ended up with a lot of expenses from its deal with GT. CNET

Apple's a very secretive company and requires its suppliers to act the same way. So, it was an unexpected turn when GT Advanced -- which produced synthetic sapphire for Apple -- spent about two-dozen pages bemoaning the tech giant.

In court papers made public Friday, GT -- a New Hampshire-based firm that filed for bankruptcy last month -- provided a rare and unflattering view of what it was like for it to be an Apple supplier and what went wrong in its relationship with Apple.

GT Advanced late last year signed a $578 million deal to develop sapphire exclusively for Apple in a 1.4-million-square-foot facility in Mesa, Ariz. The final $139 million installment was expected by the end of last month. GT instead filed for bankruptcy protection, and Apple and GT have since reached a settlement deal.

Here are a few insights from Friday's bankruptcy papers:

  1. In case you didn't know, Apple's a fan of secrets. GT Advanced's project with Apple was codenamed Project Onyx and was deemed "highly confidential" in Apple's paperwork. GT workers had to sign papers requiring them to only refer to Apple by a codename, as well. GT was sworn to secrecy, saying if it disclosed any aspect of its deal with Apple, it was liable for damages of $50 million per occurrence. (The court granted GT permission to reveal certain information as part of its bankruptcy proceedings.)
  2. We still don't know anything. While many analysts believe GT was producing sapphire as a new display cover for Apple's iPhone smartphone, there wasn't a clear indication in the court paperwork what all that scratch-resistant material was going toward. Apple said GT's sapphire was to be used in millions of its products but never specified which ones. Also, a master development and supply agreement between the two companies filed in a US bankruptcy court in New Hampshire remains under seal and away from public record.
  3. Apple doesn't like to haggle. According to a GT filing Friday from its chief operating officer, Apple told GT management it should "not waste their time," since Apple doesn't negotiate with its suppliers. When GT said it expressed concerns about the deal's terms, Apple told GT should, "Put on your big boy pants and accept the agreement."
  4. GT was on the hook for a $1 billion fee. As part of the deal, GT agreed to an "exclusive right of negotiation," giving Apple a 30-day window to negotiate with GT if GT wanted to sell itself or its sapphire business or it received an expression of interest from another party. Failure to follow this clause would result in a $1 billion payment to Apple.
  5. It's a classic tale of he said, she said. While GT claimed Apple's controlling nature and constantly changing standards for its sapphire drove GT to bankruptcy protection, Apple responded that GT simply failed to fulfill its promises. "Whatever other allegations the Debtors have made, the fact is that we are here today because the Debtors did not and could not live up to their contractual obligations," Apple said in a bankruptcy filing Friday, after it failed to keep GT's negative statements sealed. It later added that it "bent over backwards" to help GT.
  6. Apple and GT's marriage was short, but costly. GT said Friday that it incurred $900 million in costs related to the Apple project and it expects to cut more than 1,300 jobs (including temporary positions) when it's done winding down its sapphire-production operations. Apple said it sank over $500 million to buy and develop the Arizona facility and loaned GT $439 million -- saying it committed to risk up to $2 billion in all. Regarding reputation, both suffered, though GT clearly much more. Apple was painted as a controlling villain by its supplier and admitted that "defamatory" and "scandalous" statements like those from GT would make it harder for it to deal with suppliers in the future. GT's market value was almost entirely wiped out and its ambitions as a company are far smaller now than they were just a year ago. Apple said Friday it received "only a small fraction" of the sapphire it expected to get from GT, so after all that it's unlikely all that many products have been created using GT's sapphire.