GT Advanced COO Blames Apple's Strict Sapphire Contract Terms for Bankruptcy Filing

GT Advanced's Chief Operating Officer Daniel Squiller yesterday filed some revised documents with the court, giving a bit more insight into what went wrong between Apple and GT Advanced that led to the latter company's Chapter 11 bankruptcy filing.

Shared by Fortune, Squiller's affidavit [PDF] delves further into the contractual obligations outlined in GT's agreement with Apple, which led to huge losses of money as the contract was highly favorable to Apple.

gt_advanced_logo
It was known that the terms of the contract prevented GT Advanced from selling its sapphire to customers other than Apple, but as it turns out, Apple also had a vast amount of control over GT's sapphire production. For example, GT was not able to modify equipment, specifications, or the manufacturing process without express consent from Apple, but Apple could modify the terms at any point. GT was also expected to fulfill any of Apple's purchase orders at Apple's demand, with severe penalties for failing to do so.

GTAT must accept and fulfill any purchase order placed by Apple on the date selected by Apple. If there is any delay, GTAT must either use expedited shipping (at its own cost) or purchase substitute goods (at its own cost). If GTAT's delivery is late, GTAT must pay $320,000 per boule of sapphire (and $77 per millimeter of sapphire material) as liquidated damages to Apple. To put this figure in perspective, a boule has a cost of less than $20,000. Apple, however, has the right, without compensating GTAT, to cancel a purchase order in whole or in part at any time and reschedule a delivery date at any time.

Apple was also in charge of the Mesa, Arizona facility that it acquired for GT Advanced, and delays at the facility cut into GT's production time. Apple reportedly decided it was too expensive to provide backup power for the furnaces and on multiple occasions, power interruptions led to delays and loss of sapphire boules. GT Advanced was also not in charge of the sapphire cutting tools that it received, and in his affidavit, the COO says that the tools did not "meet their performance and reliability specifications."

The contractual obligations ultimately resulted in GT's inability to meet "cost and production targets" for reasons that it says were "beyond its control." Issues in scaling its technology to create large 262kg sapphire boules to meet Apple's specifications also led to the bankruptcy filing.

The key to making the transaction profitable for both sides was the production of a sufficient number of 262kg boules of sapphire crystal meeting the specifications required by Apple. [...]

Unfortunately, the production of 262kg boules of sapphire could not be accomplished within the time frames the parties had agreed, and was more expensive than anticipated. These problems and difficulties resulted in a liquidity crisis at GTAT, which led to the commencement of these chapter 11 cases"

Though Apple and GT Advanced have reached an agreement to dissolve their partnership, the two will remain in contact as GT Advanced continues its research work focused on producing larger sapphire boules. The two companies will meet quarterly to discuss GT's progress on that front, with collaboration still possible if both sides agree to move forward.

GT Advanced has already begun winding down operations at the Mesa, Arizona sapphire plant, wrapping up sapphire boule production, decommissioning furnaces, and laying off employees. The plant is expected to shut down on December 31.

Popular Stories

New Things Your iPhone Can Do in iOS 18

20 New Things Your iPhone Can Do in iOS 18.2

Monday December 16, 2024 8:55 am PST by
Apple released iOS 18.2 in the second week of December, bringing the second round of Apple Intelligence features to iPhone 15 Pro and iPhone 16 models. This update brings several major advancements to Apple's AI integration, including completely new image generation tools and a range of Visual Intelligence-based enhancements. Apple has added a handful of new non-AI related feature controls as...
Generic iOS 18

Apple Releases First Betas of iOS 18.3 and iPadOS 18.3

Monday December 16, 2024 10:06 am PST by
Apple today seeded the first betas of upcoming iOS 18.3 and iPadOS 18.3 updates to developers for testing purposes, with the software coming a week after Apple released iOS 18.2 and iPadOS 18.2. iOS 18.3 and iPadOS 18.3 can be downloaded from the Settings app on a compatible device by going to General > Software update. There's no word yet on what's included in iOS 18.3 and iPadOS 18.3, ...
apple tv 4k yellow bg feature

New Apple TV Rumored to Launch Next Year With These Features

Tuesday December 17, 2024 9:02 am PST by
The current Apple TV 4K was released more than two years ago, so the streaming device is becoming due for a hardware upgrade soon. Fortunately, it was recently rumored that a new Apple TV will launch at some point next year. Below, we recap rumors about the next-generation Apple TV. Bloomberg's Mark Gurman last week reported that Apple has been working on its own combined Wi-Fi and...
iPhone 17 Slim Feature

'iPhone 17 Air' With 'Major' Design Changes and 19-Inch MacBook Detailed in New Report

Sunday December 15, 2024 9:47 am PST by
Apple is planning a series of "major design" and "format changes" for iPhones over the next few years, according to The Wall Street Journal's Aaron Tilley and Yang Jie. The paywalled report published today corroborated the widely-rumored "iPhone 17 Air" with an "ultrathin" design that is thinner than current iPhone models. The report did not mention a specific measurement, but previous...
Apple TV 4K hero 221018 feature

Here is Everything New for the Apple TV in the tvOS 18.3 Update So Far

Tuesday December 17, 2024 6:25 am PST by
Apple on Monday seeded the first tvOS 18.3 beta to developers for testing. The update will likely be released in January. So far, there are only minor changes for the Apple TV, with one new feature and a few code changes discovered. Below, we outline what is new in tvOS 18.3 so far. Robot Vacuum Support in Home App First, tvOS 18.3 will add robot vacuum support to the Home app on the...
iPhone 17 Pro Dual Tone Feature 1

iPhone 17 Pro Rumored to Stick With 'Triangular' Camera Design

Wednesday December 18, 2024 2:36 am PST by
Contrary to recent reports, the iPhone 17 Pro will not feature a horizontal camera layout, according to the leaker known as "Instant Digital." In a new post on Weibo, the leaker said that a source has confirmed that while the appearance of the back of the iPhone 17 Pro has indeed changed, the layout of the three cameras is "still triangular," rather than the "horizontal bar spread on the...
elevation lab airtag battery

Your AirTag's Battery Will Last for Up to 10 Years With Elevation Lab's New TimeCapsule Enclosure

Wednesday December 18, 2024 10:05 am PST by
Elevation Lab today announced the launch of TimeCapsule, an innovative and simple solution for increasing the battery life of Apple's AirTag. Priced at $20, TimeCapsule is an AirTag enclosure that houses two AA batteries that offer 14x more battery capacity than the CR2032 battery that the AirTag runs on. It works by attaching the AirTag's upper housing to the built-in custom contact in the...

Top Rated Comments

Peace Avatar
132 months ago
Of course it was highly favorable to Apple. Apple paid for it.

If the COO of GT thought it was the strict contract why did he sign it ?
Score: 75 Votes (Like | Disagree)
Z400Racer37 Avatar
132 months ago
So. A COO is dumb enough to sign a contract that was so potentially debilitating to his company, and then he blames Apple for signing next to his name?
Interesting...
Score: 52 Votes (Like | Disagree)
theheadguy Avatar
132 months ago
I know that everyone will get on GTAT's back about this, but I respect his point. Apple has billions upon billions of dollars, they don't. GTAT took a chance, and failed. It should be respected that they tried.

This is also a loss for Apple. Obviously, Apple wanted this work done, and they wanted the expertise that GTAT had. Perhaps if Apple was not as heavy handed with the contract terms, this would have worked out for all.

It's not necessary for Apple to flex its corporate muscle all the time. Sometimes it can backfire.
Score: 35 Votes (Like | Disagree)
MonstaMash Avatar
132 months ago
Of course Apple isn't going to pony up half a billion unless they have strict demands for a high quality product.

GTAA shouldn't have signed if they couldn't promise the results.
Score: 15 Votes (Like | Disagree)
c1phers Avatar
132 months ago
So. A COO is dumb enough to sign a contract that was so potentially debilitating to his company, and then he blames Apple for signing next to his name?
Interesting...

Exactly, both the Executives and their lawyers agreed to this. Don't blame Apple for your legal stupidity GTAT.
Score: 13 Votes (Like | Disagree)
Drumjim85 Avatar
132 months ago
Isn't Apple rich enough? Like seriously who creates possible fines of $300,000.

Like seriously, who accepts a contract with possible fines of $300,000
Score: 12 Votes (Like | Disagree)