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You are here: MacNN Forums > News > Mac News > GT Advanced CEO tells court Apple contracts were 'unsustainable'

GT Advanced CEO tells court Apple contracts were 'unsustainable'
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Oct 29, 2014, 09:37 PM
 
Daniel Squiller, the COO of GT Advanced Technologies who was among those slowly selling off his holdings in company over the course of 2014, has told the bankruptcy court that the company lost $461 million before it finally filed for bankruptcy, which he characterized as a last-resort measure to get out of "unsustainable" contracts with Apple. Squiller painted a picture that claimed that GT Advanced assumed all the risk in their joint venture, while Apple took none.

In a 22-page filing, Squiller's version of events places all of the blame on what went wrong on Apple and its contract rather than on GT Advanced. He does admit that the root cause of the problems between the two companies was GT Advanced's inability to produce the larger-sized boules of sapphire the company had promised, but GT could not produce the material in the time frame Apple required, and said that the process turned out to be much more expensive than anticipated.

GT Advanced was intending to produce sapphire boules at 256 kilograms, more than double the typical size of such boules. This would produce a competitive advantage for Apple, reducing certain kinds of repairs and offering a feature other manufacturers couldn't match at the same cost. However, Apple requires enormous quantities of materials -- sometimes cornering the market's output in scarcer minerals -- and needs them within strict time frames. On top of that, the company is notorious for its high quality standards. The combination of factors, GT admitted, were more than it could cope with.

"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," Squiller said in the filing. While admitting that Apple had expected the partnership would prove highly profitable for both companies, he complained that the deal placed all the risk on GT Advanced. For example, while Apple was the exclusive client for the sapphire GT was producing, it was under no contractual obligation to buy any of it.

Squiller also blamed other factors, such as some of the equipment that Apple picked and bought for the company, which he now claims "could not economically produce a product that Apple would accept." He blamed the tools, saying "GTAT believes that it was unable to achieve its planned fabrication cost and production targets because many of the tools did not meet their performance and reliability specifications." As a result, GT Advanced found itself selling its sapphire to Apple at a substantial loss.

"If the pricing set forth in the Apple Agreements could not be renegotiated, GTAT would never realize a profit," the company said in its filing. It also outlined the various reasons Apple would have to rebut GT's contentions, including the fact that the company clearly signed the contract and thus agreed with the terms laid out, and that Apple was unaware that the company was losing money on the deal. However, Apple would not need to present its counter-argument, Squiller said, as the two companies had worked out an agreement to dissolve the partnership.

Squiller, along with CEO David Guitterez, quietly sold off much of their shares of stock in GT Advanced ahead of the surprise bankruptcy filing, while the stock was still trading in the $13-17 range. After the bankruptcy, the stock fell to as little as 43 cents.


     
Makosuke
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Oct 29, 2014, 11:12 PM
 
Purely out of curiosity, if the contract was so horrible, why did this guy--personally--sign it in the first place (and, perhaps more importantly, then file to unload his stock once the price got cranked up as a result of this "unsustainable" deal)? Forget to read the fine print?

(The actual answer, of course, is that if you look at GTA's financials the couple of years prior to this deal, the company was already on its way down the toilet anyway--sales in 2013 were catastrophically bad--and the execs probably figured it couldn't possibly make things worse. They're just trying to save face at this point.)
     
chimaera
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Oct 29, 2014, 11:20 PM
 
The story answers that, both parties expected the partnership would prove highly profitable. Also, the leadership stock sales were scheduled way in advance.

However, it should have been obvious months ago they couldn't overcome the problems in time. They should have renegotiated with Apple or filed for bankruptcy much sooner. Holding off meant propping up the stock price until those scheduled stock sales could clear.

I find the failure reasons given to be reasonable. However, they may open up the GTAT leadership to stockholder suits. Why didn't the leaders declare bankruptcy sooner, to stop the bleeding? That question will likely be the key one if stockholders sue.
     
Charles Martin
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Oct 30, 2014, 01:45 AM
 
Unless the SEC is completely asleep at the wheel, I'm guessing they will be investigating the stock sell-of in an entirely separate investigation which will likely come to light soon.
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Bittyson
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Oct 30, 2014, 06:07 AM
 
In other words, we bet the company with your money and lost it all, but we came out just fine. But we made a risky bet and Apple shouldn't have let us make such a risky bet.

Nice try.
     
davisadm
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Oct 30, 2014, 11:39 AM
 
Before signing the contracts, GT knew what Apple needed and expected. GT figured they could find a way to do it after the contracts were signed, but obviously they did not know what they were doing.
     
lockhartt
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Oct 30, 2014, 11:49 AM
 
He certainly has no shortage of excuses as to why it didn't work, but he missed the most important one - irresponsible leadership. GTAT leadership failed to properly consider all the risk variables in the equation and/or had already formulated an exit strategy that ensured they would profit personally should the venture fail.
     
Makosuke
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Oct 30, 2014, 02:21 PM
 
"Also, the leadership stock sales were scheduled way in advance."

Just wanted to note that while of course, yes, the stock sales had to be put into motion months before the stock actually went on the market, if you look at when the execs originally filed to sell the stock, it was after they'd already started missing deadlines, so after they'd already started having trouble.

So even if they *didn't* delay the bankruptcy filing until they'd personally cashed out, they certainly started trying to cash out as soon as things looked like they were going south.
     
GaryDeezy
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Oct 30, 2014, 02:27 PM
 
I find it so disingenuous of this CEO, who was selling off his shares long before the public knew of the company's failure to deliver on production, to make such as statement. Let's look at the facts: Apple said to them, "We believe in the promise of your product (sapphire) even though you haven't proven you can deliver it in quantities and quality that we require. We believe in you enough that we will finance a huge plant in Arizona, and front you the money to by the equipment you need to fill the plant. The only thing you have to do is deliver on your product promises."

GTAT failed to deliver, and now blames Apple.
     
   
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