Apple supplier GT's bankruptcy filing surprises even Apple
Apple, which partnered with GT Advanced on sapphire goods, says it will continue to work with state and local officials as it considers its next steps.
This week's bankruptcy filing of GT Advanced Technologies, a supplier to Apple of scratch-resistant sapphire goods, appears to have caught even Apple by surprise.
Amid speculation about what caused GT's bankruptcy filing, Apple on Wednesday indicated that it didn't see the filing coming and it's figuring out what to do next.
"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," an Apple spokesman said in a statement Wednesday, adding that the company was "proud" to help bring manufacturing jobs to the US.
Apple's comments come after GT on Monday shocked investors and industry watchers by filing for Chapter 11 bankruptcy protection, claiming an undefined "severe liquidity crisis." The move wiped out nearly all the company's market value, roughly $1.5 billion, in a matter of minutes.
Since then, GT has provided little explanation of what exactly caused that sudden turn of fortune, after the company's stock was riding high just a month ago on predictions (now known to be false) that GT would supply the new displays for the next Apple iPhone smartphone. Some answers could start to be revealed as hearings begin Thursday morning in a US bankruptcy court in New Hampshire.
"Every one of the stakeholders was caught off guard, including the shareholders," said bankruptcy lawyer Peter Tamposi, who represents a Boston construction company owed $500,000 for helping build an expansion at GT's Merrimack, NH, headquarters.
A GT representative didn't respond to a request for comment.
GT Advanced, which has about 1,100 full-time employees, late last year signed a deal to develop artificial sapphire goods for Apple. The deal started GT into a new business of making artificial sapphire, after it was previously only selling the equipment to make the material. Apple agreed to loan GT $578 million to start up a 1.4-million-square-foot facility in Mesa, Ariz., that Apple owns to create sapphire products exclusively for Apple. The final $139 million installment was expected by the end of this month. GT is required to repay that money over five years, starting in 2015, though Apple has the right to accelerate the repayment if GT fails to meet certain obligations.
The Wall Street Journal, citing people familiar with the matter, said Wednesday that Apple had been working with GT so it could remain solvent. The people also told the publication that Apple hadn't called for repayment of its loans.
Many analysts expected Apple would use the scratch-resistant material for new displays on its next iPhone, but Apple instead revealed last month that it stayed with a glass display for the new iPhone 6, likely sticking with Corning's Gorilla Glass. GT's stock had fallen since that announcement, but took a huge tumble Monday.
Since the bankruptcy filing, some analysts predicted that Apple decided to call in the funds it loaned to GT -- potentially because the sapphire being created wasn't good enough, Apple changed its plans on using sapphire, or GT overpromised and underdelivered on what it could do.
Another view is that GT ran out of money as it tried to build up the Arizona plant. The company in August warned that it was experiencing cost overruns at the facility, which were causing it to post quarterly losses. The firm reported about $45 million in expenses related to the plant in its second quarter -- which caused the company to swing to a loss for the period -- and expected to post another $45 million in similar expenses for the rest of the year, mostly in the third quarter. While this issue wasn't generally seen at the time as a major red flag, it could point to where GT's cash crunch originated.
The company said Monday that as of September 29, it had about $85 million in cash. It's now seeking debtor-in-possession financing, which would provide the company with additional funds. As of June 28, GT said, its assets totaled about $1.5 billion and liabilities totaled about $1.3 billion.
Despite the major setback, several analysts predicted that the bankruptcy filing won't affect next year's launch of the Apple Watch smartwatch, which will use sapphire as a cover in some designs. Apple also uses sapphire for the camera cover and home button on newer models of its iPhone.
"The amount of sapphire needed for the Apple Watch is small, relative to the amount needed for [iPhone] covers, so the industry could easily supply that amount to fabricators," said Andrew Abrams, managing director for JG Capital.