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Apple sapphire supplier files for Chapter 11

Gregg Keizer | Oct. 7, 2014
The move by GT Advanced Technologies has nothing to do with sapphire-less iPhone 6 Plus, argues analyst.

In August, GT said that Apple had already paid $439 million of the $578 million, and expected that the final payment of $139 million would be made on time by Apple at the end of this month.

But the company had also hinted that things were not going smoothly.

In August, Gutierrez characterized the ramp-up of production at the Arizona factory as "one really massive undertaking." And GT postponed what it had cryptically called "a business update" conference call from the week of Sept. 29 to the week of Oct. 6, or today.

In August, GT also said that it would not provide Apple with sapphire material until 2015.

The Apple deal was an exclusive, and limited GT's ability to sell sapphire for certain applications to other customers. GT has said that sapphire production was to account for about 80% of its revenue.

"The way the deal was structured was that Apple basically loaned GT money so that GT could invest in the infrastructure to produce sapphire glass," said Bajarin.

While that is not unusual for Apple -- it regularly invests in suppliers' factories in China and Taiwan -- Bajarin thought there was more to the GT deal than the run-of-the-mill.

There are multiple sapphire suppliers, Bajarin said, but if GT had been, as he suspected, in dire straits for quite some time -- the company posted losses in the last four quarters -- Apple may have come to its rescue. "Apple may have known that, but rather than let them die, which would have made one less potential supplier, it gave them a float loan to keep them alive," said Bajarin. "If GT goes under, that would have left Apple with fewer suppliers, who then may have been able to dictate production and prices."

And Apple hates nothing less than being tied to a single supplier, as moves, like the shift from Samsung for some production of its in-house-designed "A" series of systems-on-a-chip (SoC), have shown.

Bajarin didn't see GT's bankruptcy as a wrench in Apple's smartwatch plans: The quantity of sapphire necessary for the Apple Watch and also for the cover of the Touch ID scanner, is relatively small. And if worse came to worst, he would not be surprised if Apple acquired GT.

"[Sapphire] factories, including GT's, are still going, production is up and running, so there's no real issue there," said Bajarin. "What's more curious about GT is in the long run. If it's not sustainable, and Apple wants to keep them around because it decides that sapphire is the future, I can see Apple saying, 'If things at GT go south, let's just go buy it. We'll have the manufacturing and production we need.'"

GT's court-appointed claims agent, Kurtzman Carson Consultants, has not yet set a date for the required creditors meeting.


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