“In the course of the GTAT bankruptcy, Apple may come into possession of the Mesa sapphire furnaces, but whether this is a good thing remains to be seen,” Mark Hibben writes for Seeking Alpha. “These furnaces may not be capable of producing sapphire of sufficient quality to meet Apple’s needs, leaving Apple without the production capability to support its forthcoming Watch.”
“GTAT was on a clear trajectory to run out of cash by the end of Q3, but I agree that it does leave open the question of whether the remaining $139 M prepayment could have saved GTAT. One thing is certain, however. Once GTAT filed Chapter 11, it was never going to get the money from Apple,” Hibben writes. “This really speaks to the breakage in GTAT’s game plan for the Mesa plant. Either they realized that the $139 M wasn’t going to be enough to stay solvent (likely in my opinion), or they realized that they wouldn’t qualify for the $139 M and Apple would withhold payment. Given Apple’s expression of surprise over the bankruptcy, I don’t think Apple expected to withhold payment, so I regard this as somewhat less likely.”
“Either possibility indicates that the Mesa plant wasn’t going to be able to enter full production and meet its delivery commitments as GTAT had expected as of the end of Q2,” Hibben writes. “Why GTAT couldn’t deliver sapphire is really the fundamental question, and the answer to that question will govern Apple’s path forward.”
Much more in the full article here.
Related articles:
GT Advanced blames ‘oppressive and burdensome’ Apple terms in quest to ax sapphire production – October 10, 2014
GT Advanced to request to shut down synthetic sapphire production – October 10, 2014
Shattered sapphire dreams at GT Advanced – October 8, 2014
Apple’s withholding of $139 million payment led to GT Advanced bankruptcy filing – October 7, 2014
GT Advanced CEO sold 9,000 shares the day before Apple’s iPhone 6/Plus event – October 7, 2014
Law firms launch investigations into possible violations of federal securities laws by GT Advanced – October 7, 2014
Analyst: Apple may take possession of sapphire furnaces from GT Advanced – October 7, 2014
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
Some team at One Infinite Loop has been getting 3-4 hours of sleep all week as they have evaluated every supplier of sapphire on the planet to prepare a presentation for tCook. Do we take over the plant? Do we funnel it into the hands of a handpicked company? Do we trust anyone at GTAT to continue this work? Do we bail them out under very strict conditions?
Absorb GTAT production ability or set up a new team doesn’t matter. The key will be the access to the real data about what can and can’t be done in this technology. Manufacturing large blocks of anything with long batch cycles limits what you can learn and how fast you can learn it.
This may take some time to resolve and by put the high end sapphire on only the high end Apple Watch will create an exponential demand for them. Think Cabbage Patch Kids and Beanie Babies. Watch the value in the grey market spike on the limited supply of Apple Watches with the sapphire lenses.
A really smart supply chain manager never has all his eggs in one basket. We may not know Apples fall back position yet, but I’m pretty sure they have one. The work evident in the Apple Watch isn’t going to be risked one one lone noob.
I assume given GTATs prior focus that they made the fab machines – not sure – but if they did they may have overestimated their capability or capacity for rate production. I have been involved in companies where greed set in, management went into a self-delusional self-dialog, created a story line that was convincing to themselves and outsiders and ended up, on a smaller scale, like these jokers. I trust that Apple will make a prudent decision given where things are now, which is always the wisest course.
I’m somewhat concerned as to whether this will affect Apple in terms of Touch ID components. All those new iPhone 6 units and the Touch ID button on future iPads. Apple can probably hire sapphire tech engineers but I hope they weren’t misinformed about the capabilities of sapphire for smartphone displays. I’m sure the plant can be used to manufacture quality sapphire for other uses so it won’t be a complete waste. I don’t quite trust any of the rumors circulating and Apple just needs to do whatever damage control it can.
These furnaces may not be capable of producing sapphire of sufficient quality to meet Apple’s needs, leaving Apple without the production capability to support its forthcoming Watch.
I trust Apple to have decided up on sapphire for the Watch because it already knew it could deliver. I don’t see the point of questioning that possibility at this time. However, the way this mess is unfolding (way beyond what I foresaw!), it may well become a concern. Apple still has $139 million in dedicated funds to keep the solution working, which apparently it can.
But this mess is like walking on a balloon without knowing what’s inside. Is it breathable oxygen? Or is in cyanide gas?
And just to play at being insightful: What about Liquid Metal? Is that turning out to be equally limited in use and future application? Let’s have a FUD party.
great point Derek
The GTAT deal appears to be an complete scam against Apple.
I say jail time for the exec team at GT.
Gollum…what? Jail time? Foolish you are my friend…
While this event is high profile, the situation is more common than folks think in large companies. Executives often become fascinated by outside promises of new technology, and then momentum and launch fever takes over. Usually the crash and burn is not this big, but it happens all the time. It’s called Hubris. Risk mitigation should have been deployed to capture this earlier. Heckuva job Tim! Tesla assembly plant anyone? Maybe you can now turn your attention to fixing the IMAP email problem that’s been hosing your enterprise clients since Mavericks was released.
You and your damn IMAP complaints…
Deception notwithstanding, it would appear that everyone agreed that common sense business practice, supported by factual due diligence, were in fact, antiquated concepts.
Apple is known for pushing the design envelope, even in materials science and manufacturing processes. Often, things turn out great. Sometimes, however, there are setbacks, even failures. Overall, the strategy has been a very good one for Apple over the years.
Even the best planned business ventures can become problematic.
Apple’s team will come up with an excellent solution.
No need to worry.