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Follow-up: Apple sends letter to GT Advanced creditors
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Nov 20, 2014, 12:32 AM
 
More details on the collapse of the GT Advanced Technologies deal with Apple were made available today, as sources have reported that a letter sent by Apple to other creditors in the GT Advanced bankruptcy case reveals more details on why the partnership collapsed. Included in the letter were pictures of defective sapphire boules produced by GT Advanced, pointed to by Apple as the main reason the company went under -- it contracted to produce high-quality boules of the material, but simply couldn't produce enough usable product.



The letter paints a portrait of the relationship between the two companies. GT Advanced, which up to that point had been a sapphire furnace manufacturer only, told Apple some seven months before the partnership happened that it had developed a furnace capable of producing sapphire pucks, or boules, approximately twice as large as any other maker could do -- some 578 pounds each.

Initially, GT Advanced had pitched the idea of Apple buying the furnaces outright, but instead the iPhone maker offered to lend GT Advanced a total of more than $500 million with the idea of the furnace maker operating its own equipment in Apple's facility in Mesa, Arizona. According to a report from the Wall Street Journal, Apple was hesitant to buy the furnaces outright (with their 40 percent markup), and instead offered to lease the plant in Mesa for $100 per month, a token payment, in the hopes of turning GT Advanced into a major sapphire glass manufacturer.

Though agreeing to the deal, GT Advanced did not have any experience in operations compared to equipment-making, a fact that revealed itself when the first boule to be produced by GT in its own furnace was unusable, according to the report. This happened just days before the company entered into the agreement with Apple.

Though quality improved over time, the company was never able to get more than half of its output to be usable for Apple's purposes. GT Advanced ran into other operations-related issues like overhiring, employees who would abuse the non-existent attendance policy, and what Apple calls "ineffective" management, such as one manager who nearly consigned a quality pallete of 500 boules to the recycling facility rather than to the processing plant. In its letter to creditors, Apple claims it actually received only about 10 percent of the finished material GT Advanced had contracted to produce.

According to Apple, it only became aware of GT Advanced's financial situation in September, a month before the company filed for bankruptcy. Although the firm had not met production goals, Apple had offered to deliver the final tranche of payment to the firm, some $100 million out of a planned $139 million, and to push back repayment dates so the company could recover.

In addition, Apple says that it and GT Advanced were set to meet over a possible price increase that would further aid the struggling maker in 2015, a meeting that would also discuss letting GT Advanced sell more furnaces to outside firms, which would have further alleviated cash-flow issues. Instead, GT Advanced filed for bankruptcy a day before that meeting was scheduled to take place.

The story from Apple's perspective seems, on first reading, to make more sense than the claims made by GT Advanced executives that Apple's contract terms, which they signed, were "oppressive and burdensome," though Apple letter does not address other claims that Apple interfered with GT Advance management, changing terms and goals and applying inconsistent quality standards.

Since the initial filing, Apple and GT Advanced have agreed to a potential settlement that would allow the latter company to sell over 2,000 furnaces it produced to repay the $439 million it currently owes Apple. However, a hearing on the matter that could have approved the settlement has now been delayed by the judge, based on objections from the other creditors, who want access to documentation to determine which side is telling the truth in the dispute. The other creditors are concerned that Apple is in line to be the first creditor to be paid, rather than among the last as it perhaps should be.
     
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Nov 20, 2014, 01:56 AM
 
they should have hired Walter White, they would have had perfect crystals!
     
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Nov 20, 2014, 11:13 AM
 
Church.
     
I-ku-u
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Nov 20, 2014, 05:54 PM
 
"Though agreeing to the deal, GT Advanced did not have any experience in operations compared to equipment-making, a fact that revealed itself when the first boule to be produced by GT in its own furnace was unusable, according to the report."

They made a complex product that they themselves did not know how to use?!? So they had zero quality control, if Apple's statement is to be believed.
     
   
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