Documents imply GTAT sapphire was destined for iPhone 6

But what went wrong with the $587m Apple deal is still unknown


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GT Advanced Technologies’ original deal with Apple, signed last Halloween, mandated that the Merrimack-based company install 2,036 sapphire furnaces by April 2014, indicating that the product that was supposed to be produced in those furnaces was intended for the touchscreens of its new iPhone 6 after all.

But Apple’s decision to only use the sapphire in its new Watch sharply reduced its demand and resulted in the tech giant withholding a $139 million prepayment. The result was GTAT’s Oct. 6 bankruptcy filing.

What went wrong with the $587 million deal is still unknown, but full details of the deal itself were released in 266 pages of documents filed Oct. 22, the day after a federal bankruptcy judge allowed GTAT to wind down the operation and lay off some 890 workers, including 47 in New Hampshire, in light of a new agreement reached with Apple.

The sheer number of furnaces surprised some analysts who had downplayed as hype speculation that sapphire would replace Corning’s Gorilla Glass, which is used for the iPhone screens. Critics said that sapphire, while more scratch-resistant, was also more likely to shatter.

But even if GTAT solved the shattering problem, analysts had doubted that the small material equipment company – with no commodity production experience – could produce suitable material at a low cost and on such a vast scale in such a short timespan.

“With benefit of hindsight, the construction of such a large number of furnaces seems monumentally stupid, if not madness,” writes Mark Hibban, a technology blogger on SeekingAlpha.com

The documents revealed that from the get-go Apple and GTAT agreed to install 2,036 furnaces – including 54 at GTAT’s facility in Salem Mass. – and that they should have been up and running by April, when the company would get its final $139 million prepayment.

The original deal also prevents the company from selling material or furnaces to any Apple competitor, primarily singling out consumer goods. The latest agreement allows GTAT to sell the furnaces and material to whoever will buy them.

The agreement also indicated that Apple was interested in buying some of the equipment itself, insisting that it get first dibs and the lowest price. This raises the question as to whether Apple might still want to purchase some of GTAT’s equipment.

The terms of the original deal – which GTAT has called “burdensome” – allowed Apple to call in its loan for missed deadlines or other reasons, such as GTAT running low on cash. There are additional penalties spelled out as well, including one for $1 billion.

The original deal also prevents the company from selling material or furnaces to any Apple competitor, primarily singling out consumer goods. The latest agreement allows GTAT to sell the furnaces and material to whoever will buy them.

The agreement also indicated that Apple was interested in buying some of the equipment itself, insisting that it get first dibs and the lowest price. This raises the question as to whether Apple might still want to purchase some of GTAT’s equipment.

Indeed, an Apple spokeswoman seemed to be optimistic that something could be salvaged out of all this.

"Apple put a lot of effort into an ambitious new sapphire manufacturing process with GTAT which is not ready for production. We're going to continue evaluating GTAT's progress on larger sapphire boule development, as well as consider other options for the facility,"

But GTAT seems ready to move on. It has already started to wind down the plant. At deadline, the company said it issued some 740 federally required WARN layoff notices and had already laid off 650 workers in Arizona, with some 70 remaining to close down the operation.

The court approved $180,000 in incentive bonuses for them to stay on.

“We are pleased with the settlement,” said GTAT CEO Tom Gutierrez in a release issued after the hearing. “We realize that our filing for Chapter 11 protection has caused uncertainty and hardship. We have been working diligently to develop a restructuring plan that will allow us to emerge from Chapter 11 … with the operating flexibility and resources to position GT for long-term success.”

GTAT shareholders, however, remain skeptical though the company’s share price did bounce up to roughly 80 cents a share on the Pink Sheets, about double the low following the stock Oct. 18 delisting from the Nasdaq. GTAT shares had been trading at $20 a share earlier this year.

Because of the huge fluctuation in price, some investors are seeking to form their own committee in the bankruptcy proceeding, according to Reuters, and at deadline there have been nine federal shareholder suits filed against Gutierrez and other officers.

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