“Although not a great deal of information has come out of the GT Advanced Technologies bankruptcy proceedings, Philip Elmer-Dewitt recently reported a settlement between Apple and GTAT that calls for the selling off of 2,036 furnaces that GTAT built in Mesa,” Mark Hibben writes for Seeking Alpha. “With benefit of hindsight, the construction of such a large number of furnaces seems monumentally stupid, if not madness. The settlement is in effect an acknowledgment by Apple that there was plenty of blame to go around for this debacle.”
“More than anything else, I had assumed that GTAT and Apple would be reasonably intelligent about ramping up sapphire production at Mesa. Clearly, I was wrong about that,” Hibben writes. “I had argued that Apple would not commit to using sapphire for iPhone until GTAT had demonstrated reliable production capability for a much smaller volume product, the Apple Watch. Supplying sapphire for Watch would only require on the order of 100 furnaces, not the thousands that were rumored. The construction of the 2,000 furnaces indicates that production of sapphire screen covers for an iPhone 6 variant was intended, and more importantly, these would be solid sapphire… Once again, I believe that sapphire was never going to make it into the iPhone 6, but Apple may have had plans for a high durability version of the phone for some time in the near future. Based on Elmer-Dewitt’s report of October 15, GTAT stated that they had about 1000 furnaces in operation, so it appears Apple was still expecting to take delivery of iPhone sapphire screens later this year.”
“It’s clear that Apple must have concurred with GTAT’s decision to build the 2,000 furnaces. The Agreement mandates the building of the furnaces, and besides, as GTAT’s landlord in Mesa, Apple would be responsible to provide the infrastructure to power them, a massive undertaking in itself. This is Apple’s share of responsibility for this mess,” Hibben writes. “GTAT’s bankruptcy demonstrates that they had decided that there was no way to meet their financial and supplier commitments to Apple. Why that is we may never know, and there are so many ways in which this could have fallen apart that it’s difficult to select a most likely failure mechanism.”
“The best clue to the failure is, in my view, the fact that only about half of the 2,000 furnaces were operational at the time of the bankruptcy filing. It’s likely that the other half haven’t even been completed yet, or are unable to produce usable boules. This goes back to my recent theory of how GTAT got into trouble. It appears that GTAT committed to a new and unproven furnace design, capable of producing much larger (~200 kg) boules in order to reduce production costs. GTAT subsequently ran into unanticipated problems getting the furnaces operational, and consequently burned through Apple’s prepayment faster than expected,” Hibben writes. “This saddled GTAT with only a set of non-options going forward.”
Much more in the full article – recommended – here.
Related articles:
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