GT Advanced to shut down Ariz. plant, cut ties with Apple
About 890 jobs may be lost from shutting down its sapphire operations, but GT says its agreement with Apple included "oppressive and burdensome" terms and obligations.
Apple supplier GT Advanced is moving forward with plans to reject about a dozen agreements with Apple and wind down its massive sapphire-production facility in Mesa, Ariz.
In bankruptcy-court filings made public Friday, the company came forward with an explanation for its surprise Chapter 11 bankruptcy protection filing Monday, saying the cash burn from operating the Arizona sapphire-production plant for Apple wasn't sustainable and it needed to end work there to preserve the company.
In the filings, a judge granted some initial step in the process for the Merrimack, N.H.-based company to end its agreements with Apple and shut down sapphire-manufacturing plants in Mesa and Salem, Mass., by year's end, which would result in the loss of 890 jobs. GT has about 1,100 full-time employees.
The filings present a sudden about-face from GT, which less than a year ago agreed to produce artificial sapphire for Apple, but is now seeking to abandon that work entirely and get back to its primary business of selling sapphire equipment. "Only if GTAT winds down these operations will it be able to stop its mounting losses and re-focus its resources on the operation of its core business of selling sapphire furnaces and other products," the company, which also refers to itself as GTAT, said in a filing.
In its requests to the court, GT said "the agreements imposed oppressive and burdensome terms and obligations" on the company, adding that "continued performance under the Agreements is no longer a viable business option." It also said in court papers that it found operating under its agreements with Apple "constitute an unnecessary drain" on its resources and it wanted to reject the deals under the bankruptcy code.
GT this week 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 had 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.
GT's stock dropped 31 percent Friday, below $1 a share. It was trading above $17 a month ago.
"We are working diligently to put in place a restructuring plan that will allow us to emerge from Chapter 11 as quickly as possible and with the operating flexibility and resources to position GT for long-term success," a GT spokesman said Friday, adding that the company's leaders "continue to explore all options" for the Arizona and Massachusetts facilities.
An Apple representative referred back to the company's statement earlier this week that mentioned Apple was surprised by the bankruptcy filing and was working to preserve jobs in Arizona.
GT Advanced late last year signed a deal to develop artificial sapphire goods for Apple. The deal started GT into a new business of making sapphire, after it was previously only selling the equipment to produce the material. Apple agreed to loan GT $578 million to start up a 1.4-million-square-foot facility in Mesa that Apple owns to create sapphire products exclusively for Apple. GT's equipment in the plant was used as collateral against the loan. 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.
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.
Although GT was taking on higher expenses relating to ramping up the Arizona plant, its management as recently as August said the plant would reach "full operational efficiency" by early next year.
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. Those analysts said the amount of sapphire needed for the device was substantially less than for potential iPhone displays. Apple already uses sapphire for the camera cover and home button on newer models of its iPhone.