Investors stunned over GT Advanced bankruptcy filing

“Stock and bond market partisans of sapphire screen maker GT Advanced Technologies Inc. (GTAT) saw their loyalty turn costly yesterday,” Callie Bost and Matt Robinson report for Bloomberg News. “”

“After opening at $11.06, the stock plunged to 80 cents by the close, wiping out about $1.4 billion of market value after GT Advanced shocked investors with a Chapter 11 filing. Of 14 equity analysts that followed the maker of mobile phone screens, four considered it the equivalent of a buy at the end of last week, according to data compiled by Bloomberg,” Bost and Robinson report. “‘I can’t recall one like this before,’ Lawrence Creatura, a fund manager at Pittsburgh-based Federated Investors Inc., said in an interview. Federated did not own GT Advanced shares as of its most recent filing, he said. ‘Ordinarily, bankruptcies are a ‘slow death by a thousand cuts’ type of affair. This one is unusual in its suddenness.'”

“Jeffrey Osborne, an analyst at Cowen & Co., suspended coverage of GT Advanced yesterday. He had rated the stock outperform, the equivalent of buy, since August, when he began coverage with a price target of $19,” Bost and Robinson report. “‘We have gotten this call wrong,’ Osborne wrote in a note to clients yesterday. ‘We did not appreciate that the company appears to have bitten off more than it can chew in regards to the relationship with Apple.'”

Read more in the full article here.

MacDailyNews Note: Apple Watch and Apple Watch Edition will offer sapphire crystal displays. Apple Watch sport features a strengthened Ion-X glass display.

Related articles:
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

15 Comments

  1. This is very bad, and I don’t like it one bit. (I own, nor have I ever owned stock in GT)

    Bankruptcy means creditors do not get paid. GT took a 578 million investment from Apple 11 months ago and received at least 120 million in direct cash if not over 200 million. This bankruptcy filing means that management didn’t spend or allocate this money even remotely correctly. A lot of people are going to get hurt on this one, not just investors.

    The top management of GT Advanced should be prosecuted and go to jail. Tim Cook needs to step up to the plate and explain to Apple shareholders what happened.

    1. Bankruptcy comes in a number of forms. Bankruptcy does not always mean that “creditors do not get paid,” although creditors are often paid only a fraction of the debt due.

      I don’t believe that i would classify Apple’s payments to GTAT as an “investment.” Furthermore, Apple paid GTAT in installments based on progress milestones, and my assumption is that Apple management chose those milestones wisely. So it is unclear how much Apple might lose in this situation (if anything).

      IMO, your post is an overreaction based on insufficient information.

      1. You are partially correct- I’ve had a misconception of what GT Advanced has been doing for Apple: I thought GT was supplying Sapphire to Apple, NO they have been supplying crystal making machines to Apple for an Apple owned Arizona plant. What makes this unusual is that GT was supposed to pay Apple back for the “upfront” money to manufacture said machines over a period of time.

        Now, what could be happening is that another of GT’s other contracts could be what is causing this bankruptcy. Apple may have refused to renegotiate.

        What you are NOT correct about is this “creditors do not get paid”. ALWAYS in bankruptcy SOMEONE doesn’t get paid what and or when they expected. To not get paid for several months or get paid even 5-15% less then you expected can be a huge problem for many firms such as construction and engineering firms. Bankruptcy is ALWAYS bad and should never be minimized.

        All I’m saying with that much “Apple money” flowing around, SOMEBODY screwed up big time. Top management should have known better.

        PS: the time to buy GT Advanced stock MAY be today. They are having a big sale on their stock. Think of it this way: if Apple was selling a computer for $1200 on Friday and today they were selling that same computer for $90- wouldn’t people be lined up to buy? In GT stock there is a “percentage” to be made. The question is what is that percentage? I know it is between -100% and 2000%. This range is called “risk”. (be careful) 🙂

        1. Don’t buy stock of a company that filed for Chapter 11. It’s damn stupid and you could end up losing everything you put in. If you feel like burning money, that’s your business. But do not go in expected any return on your investment.

          1. It is entirely possible to make a large percentage profit in GTAT stock as GT Advanced goes through the bankruptcy process.

            Alternatively, the stock could be declared worthless at any moment and you would lose EVERYTHING you have invested. If you where to buy GTAT stock on margin and this happened, you would be in deep trouble.

            1. For example, if you had bought GTAT at 3:59pm Eastern on 10/6 (yesterday) and sold at about 12:15pm on 10/7 (today) you would have made a 96% increase. That is NOT a bad percentage.

              Please do not do this if you do not understand the risks. In this case, the risks are many.

        2. “What you are NOT correct about is this “creditors do not get paid”. ALWAYS in bankruptcy SOMEONE doesn’t get paid what and or when they expected.”

          Absolutely not true. While you are correct for the vast majority of cases, bankruptcy protection *can* mean that creditors cannot force the company into true insolvency or other business actions. It is a rare case, but it has happened.

          Virtually any time a company’s liabilities far exceed the company’s book value and anticipated near term profits, creditors can gang up and attempt to force the company to either sell out to a larger, more cash rich entity or force the company to liquidate. The thought here is short term (and in my belief, short sighted): get as much money back as you can before things get worse. The purpose of a bankruptcy filing in this specific condition is that it keeps creditors from attempting to force this — everything else progresses as before the filing, even payment to creditors.

          1. I would hope that what you are saying about GT Advanced is correct in this case. In seems that their products are really good and no doubt their opportunity with Apple is great. However, I just can’t see how at least some, if not most, of their payments to creditors will be delayed over the next few weeks. Maybe they will sort it out and everyone will get paid fully, but I doubt it. A lot of their creditors are really worried right now.

            I worked for a company that was owed 1.3 million by Adelphia during their bankruptcy, we got paid fully after about 6 months. I was amazed, had we not, we would have declared bankruptcy ourselves. Why OUR creditors believed that receivable from Adelphia for 6 months, I do not know. Every employee took a 10% pay cut during this time. That’s getting hurt. 🙂

        3. rp, you’re wrong. Sometimes a company files for bankruptcy simply as a delay tactic, a way to get its creditors off of its back and gain some breathing room. Sometimes debts are restructured so that the creditor may actually receive more in the long run. And sometimes a creditor loses out by taking less than what they’re owed.

          However, with GT Advance, I seriously doubt any creditor is going to lose money. Payments may be delayed or restructured, but they won’t lose anything. All creditors know Apple is buying huge amounts of sapphire from GT, and likely will be buying more in the future, only the sales haven’t started in earnest yet. Once sales begin, GT will probably drop out of bankruptcy and pay people off very quickly.

          This filing is more about cash on hand dwindling than it is business model. The Watch is taking a little longer to get to market than anticipated, and thus the strategic filing.

  2. Bloomberg has an informative article out this morning.

    But there was one tiny flaw in GTAT’s plan, which was that Apple could demand all the money back, in cash, at any time, including right now, “under certain circumstances.” And GTAT didn’t have the money.

    One obvious lesson here is, don’t sign any agreements that might let your customer take all of your money if that customer is unhappy with you! Or more than all of your money.

    GTAT’s contract with Apple is, by most reasonable standards, terrible. GTAT is obligated to produce a minimum amount of sapphire for Apple (at an Apple factory), but Apple is under no obligation to buy any — and GTAT has exclusivity obligations, so it might not even be allowed to sell to anyone else. And even if no one buys the sapphire, GTAT still has to pay back the money to Apple advanced. It’s an awful deal.

    http://www.bloombergview.com/articles/2014-10-06/apple-sapphire-supplier-breaks

    1. Bloomberg speaks from an investment risk management perspective. They don’t address the basic question “What did GTAT management do with all the money Apple fronted them? Apparently they aren’t producing components for Apples product, the only reason Apple would cancel the deal and demand repayment. How many of Apples products rely on some amount of sapphire? (lens cover, fingerprint sensor and screen cover) So you screw the most valuable company in the world, impact their ability to deliver the products that make uo the bulk of their revenue stream and expect to claim it’s a bad contract? GTAT was given a lifeline with the Apple involvement and a part of an order stream that only looks to get better. GTAT problems lie in the executive suite (I used lie advisedly) The solution to their problems should come from the factory floor, not the bankruptcy court. Apple should force the dissolution of the company, keep the foundry as payment and let Samsung operate it. They would be better off.

  3. What if GTAT is going great, but the cutting and finishing machine that makes their sapphire boules into screens that could be the problem. Perhaps Apple delayed the watch by 6 months and GTAT had too great a burn rate. GTAT signed a contract where the other party could control time and GTAT was obligated to keep up their burn rate regardless.

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