Apple’s got a mess on its hands in Mesa, Arizona

“Mark Hibben, writing in Seeking Alpha about the GT ‘debacle,’ has a plausible narrative — and a pretty smart take on where Apple has to go from here,” Philip Elmer-DeWitt reports for Fortune. “For Hibben it starts with GT’s announcement in May that it was building a new generation of furnaces capable of producing 40% larger sapphire boules.”

P.E.D. reports “‘My working hypothesis,’ he writes, ‘is that GTAT committed to the larger experimental furnaces for the Mesa plant, and this is how they got themselves into trouble. They built the larger furnaces assuming that they would realize production scale economies and then discovered that the quality of the sapphire produced by the furnaces wouldn’t meet Apple’s requirements.'”

“Meanwhile Apple still has a watch to build,” P.E.D. reports. “Hibben points out that the low end of the Watch line, Watch Sport, isn’t in jeopardy because it doesn’t use sapphire. But the models with sapphire crystals — the steel and gold Apple Watches — may be delayed.”

Read more in the full article here.

[Thanks to MacDailyNews Reader “Edward W.” for the heads up.]

Related articles:
GT Advanced suggests it could sue Apple – October 10, 2014
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

16 Comments

  1. Debacle implicates a fumble, a self inflicted wound or problem. This is not that at all. This is more like an assault.

    At least if its a debacle, it’s not Apples, but GTAT executives, who don’t know how to run a company, or have ethical problems.

      1. No one knows, but Apple has a track record going back 30 years we can at least compare against, and hundreds if not thousands of suppliers over that time period.

        What do we know about GT?

    1. Indeed, there are many possibilities. Perhaps the new GTAT furnaces are working to a degree, but not well enough to produce boules suitable for large sapphire displays. The Apple Watch has a much smaller display than an iPhone, so it may very well be possible to cut small watch sections from a flawed sapphire boule, but not larger iPhone sections (at least, not in volume at reasonable yield and unit cost).

      The speculation has been rampant. I plan to sit back and watch this situation unfold.

  2. Remember, most of the guys at Seeking Alpha are amateur investors, and most of what they write is complete speculation based on the same news reports you and I read.

    They have ZERO inside info from Apple or GT.

    No one has any idea what Apple was planning on getting from GT except inside people at Apple.

  3. Apple would not have invested in GTAT so heavily without considering the possibility that Apple may have to step in and take control of the plant and the entire operating process.

    I doubt it has anything to do with the furnaces not working, but rather that GTAT doesn’t have the time and money to work out the bugs in the production process. Or maybe it has proven difficult enough that GTAT just wants out.The easiest way to get out is to declare bankruptcy, turn over everything to the major creditor (Apple), and walk away.

    1. If anyone can get manufacturing straightened out, it is Tim Cook, assuming that this is a production management issue and not a basic issue with the technology.

      It is possible that Apple takes over Mesa and then turns over responsibility for operating it to another partner, perhaps one of the silicon wafer manufacturers. The process is quite similar (grow a large crystal, cut it up).

  4. GTAT have been such a$@holes in the past week it seems like Apple would ignore them just out of spite. That said, I wonder if there’s any chance we could soon hear the two have worked out their differences, GTAT is pulling out of bankruptcy, and both are expecting a long healthy relationship for years to come.

  5. Before rushing to judgment at this stage, one needs to download and analyze the C11 filing to determine how big a creditor Apple is to the GTAT estate. They may have some large secured claims to things like furnaces or IP.

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