Analyst: Apple may take possession of sapphire furnaces from GT Advanced

“Chris Caso of Susquehanna Financial Group was out this morning reiterating a “Positive” view on Apple (AAPL) shares, and raising his price target to $120 from $115,” Tiernan Ray reports for Barron’s.

“Caso, interestingly, also took a moment to comment on the plunge in shares yesterday of Apple supplier GT Advanced Technologies (GTAT), whom analysts speculate may have filed for bankruptcy after Apple called in a loan,” Ray reports.

According to GTAT’s latest 10-Q filing, the facility in Arizona is owned by an AAPL affiliate, and was leased to GTAT for the purpose of sapphire manufacturing. In addition, the prepayment made to GTAT was structured as secured debt, with the sapphire manufacturing equipment pledged as collateral. Finally, AAPL has already been granted a license for certain sapphire related IP by GTAT, and AAPL has the right to purchase a license for additional IP at AAPL’s option. Based on these details, following GTAT’s bankruptcy, we would expect AAPL to simply take possession of the equipment that acted as security for the prepayments (particularly since AAPL owns the building), and for AAPL to exercise their option to purchase any sapphire IP that they haven’t already licensed. – Chris Caso, analyst, Susquehanna Financial Group

Read more in the full article here.

[Thanks to MacDailyNews Reader “Arline M.” for the heads up.]

Related articles:
Apple to provide debtor in possession financing to GT Advanced? – October 7, 2014
Investors stunned over GT Advanced bankruptcy filing – October 7, 2014
GT Advanced files for chapter 11 bankruptcy court protection – October 6, 2014
Apple and GT Advanced rampup sapphire production in Mesa – August 11, 2014
GT Advanced expects sales of sapphire production tools to boost profit; shares surge – August 5, 2014
Apple and GT Advanced open second sapphire plant in Salem, Massachusetts – June 19, 2014
Apple patents method for embedding sapphire displays in LiquidMetal device chassis – May 27, 2014


    1. Well, duh. On the other hand, something untold happened at GT Advanced Technologies that caused all of this, something it would appear Apple became aware of and took action to protect their strategic interest in.

      1. Of course Apple massively protected itself. That’s what you do when you loan someone $400,000,000.

        What most likely happened is that the Watch was delayed, thus putting pressure on GTAT to pay Apple and its other creditors. GTAT may not have been able to deliver sapphire in the amounts or at the time Apple needed, or it may have been waiting on Apple to get the Watch finalized so it could start supplying.

        Either way, it really doesn’t matter. This is nothing more than a stall tactic, one which will “miraculously” resolve itself once the Watch starts shipping and GTAT begins receiving revenue from Apple.

    2. Not the way the Chapter 11 works. Apple now has to try to clean up the mess before someone takes control of GT Advanced Technologies and holds Apple hostage. Someone at Apple should have been watching and advised Tim Cook and the board that things are going out of control.

      Hello Apple. Time to make a statement and step up!

      1. But you dont know what the company signed up to when the loan was given or what securities were required – which could and probably would have included first refusal on the IP

      2. The bankruptcy process in the U.S. is under court jurisdiction. Another company cannot simply come in and wipe out all existing GTAT contracts and legal arrangements. It sounds like Apple has more than sufficiently protected its technology and financial interests. Your repeated calls for action on the part of Apple are overkill. By all accounts, the appropriate actions were taken by Apple when the contract was written.

      3. Apple doesn’t have to try to clean up anything, not if it’s the first position lien holder on all of GTAT’s assets (at least those that Apple wants, like the furnaces, IP, etc.). Apple can’t be forced out because Ch 11 is reorganization, not liquidation.

        And Apple, and the most senior and largest creditor, will be in full control of the bankruptcy. No agreements will be made with the bankruptcy trustee without Apple’s approval.

    3. And GT Advanced isn’t flopping over dead. No matter what the army of lawyers representing the stockholders do, GT Advanced continues on, under bankruptcy protection. And Apple’s property remains Apple’s property.

      As I said in another thread, I expect a bombardment of FUD to follow this news. ‘Ooo! Delayed Watch? Apple is doomed!’ But this actually changes nothing for Apple.

  1. Apple, there should have been a hostile takeover of GT Advanced Technologies. Apple should have bought all of GTAT stock and everything else owned by GT Advanced Technologies before things got this far. Tim Cook and Apple’s board, time to make a statement and get in the game.

    1. Why? Apple owns the Mesa plant, it has first position security in all of the necessary equipment, and an Apple-exercisable option to buy all IP it wants at any time.

      Apple needed GTAT to outfit the plant and start growing sapphire. It is more convenient to have a company that knows what it is doing (at least regarding producing sapphire) than Apple taking it over and learning a new business.

      Apple is by far GTAT’s largest creditor and it is in priority position for security with the necessary collateral. It doesn’t need a takeover; it already took over GTAT when it loaned GTAT $400,000,000.

  2. This is a voluntary filing for chapter 11 support so in essence a form of financial engineering. By the scale of the project and number of furnaces GTAT and Apple planned on sapphire screens for iPhone.

    If GT took these steps without Apple’s knowledge let alone council I’d be shocked. Apple isn’t going to seize equipment they aren’t planning to use. GT built out the capacity to double the world supply of sapphire and presently it isn’t needed.

    GT made plans to make payments to Apple on a loan out of proceeds from sales to Apple. Lower than expected sales means GT needs breathing room or risk the entire business.

    This is the 1st absolutely clear signal that the iPhone 6’s where to have had sapphire screens and something went wrong.

    1. It also suggests to me (and maybe to the market, given the action today?) that GTAT may just need for short-to-medium term protection from creditors until the planned-for purchases now delayed materialize.

      Just have to figure out what to do with double the world’s sapphire for 8 months until the next iPhones start getting made.

      Unless we get surprise super-versions of iPhones (and iPads?) announced in Spring with a sapphire option.

  3. “AAPL” is a stock abbreviation. A stock certificate is inanimate paper and ink. It doesn’t actually do anything. It just sits there as a symbol of financial worth.

    The actual company’s name is Apple Inc. It has animate people in it who do real things within the real world.

    Of course, if you’re high on amphetamines or cocaine all day on Wallnut Street, it can be hard to tell the difference. 😛

  4. as a retired jeweler i can say that sapphire is resistant to cracking but the converse side of hardness is brittle . all solids and liquids are incompressible that is why your hydraulic brakes work in your car and steering the liquid pressed on one end transfers the force to the other end of a tube . glass (technically a viscous liquid) and crystals even as hard as diamond will cleave under pressure . a perfect crystal can take quite a pounding from the top but pressure on the other side causes a cleave of the crystal lattice . example a stone hits your windshield there is a small mark on the outside and a huge flake off the inside . your glass top table has an ash tray dropped on it and the huge flake of glass falls off the bottom of the table not the point of impact . your indian flint arrowhead was formed from flakes popping off the opposite side of the flint when pressure is applied to the shard . diamonds are cleaved with a chisel placed in a cut groove parallel to the crystal plane thus cleaving the crystal not cutting it (remember the commercial in the car with the nervous guy and the hammer) most catastrophic screen failures like the one above happen when the phone contacts the edge behind the crystal if apple wants to stop the shatter hide the edges of the crystalline material under the bezel not slightly over it dropping the phone on a corner bends the bezel and the pressure from the lump BEHIND the glass forms the crack not the force to the glass from the front . an example would be the diamonds used to cut the edge of the bezel on the phones high speed and rigid chucks make sure the leading edge hits the surface in a forward direction not down on the back of the edge of the cutter. another example of this principle is glass cutting first a scratch is made on the glass to provide a break in the structure then an object (the ball on the cutter ) is placed under the glass and pressure on the edges cleave the glass along the scratch (the weakest point by a slight amount)

    in fact the toughest mineral is jade (jadeite not nephrite) because its structure is amorphous (small particles evenly distributed ) hardness is scratch resistance and toughness is a measure of resistance to sloughing or wearing away of the material like the foot wear on a marble staircase a jade staircase would last a thousand years of heavy traffic where marble may only stay level for 30 years or so. If apple wants a shatter resistant screen it needs to focus on the support and edge protection not the material (ask yourself how your wife chipped her engagement diamond and then look to sase whether the chip is on the bottom (below the prongs ) or top ( above the prongs ) if on the top the jeweler left a burr under the edge under a prong if on the bottom there was pressure on the very edge from the top . sapphire is good material but any stone setter will tell you even slight pressure from the back side is disaster. hard is brittle and cleavage is the problem to shattering . the sapphire will only slow down the scratching from dust which is mostly quartz (hardness of 7) same as glass sapphire is 8 or 9 but much stiffer than glass and susceptible to pressure fractures on the leading edge . making the edge of the glass curved is a good step but if the underlying bezel bends and puts pressure from the back near the edge even a diamond will cleave

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