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GT Advanced blames Apple for one-sided sapphire contract that resulted in $461M loss

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Testimony from chief operating officer of GT Advanced Technologies reveals that the company lost $461 million before it filed for bankruptcy — a course that the company asserts was the result of "unsustainable" contracts in which it assumed all of the risk, while Apple took none.

GTAT COO Daniel W. Squiller filed a declaration with bankruptcy court in Delaware this week in which he told his side of the story in his company's decline. The 22-page filing reveals a number of new bits of information on exactly what happened behind the scenes as the relationship between GT Advanced and Apple fell apart.

GTAT officials argue that their company assumed all of the risk, and as a result lost nearly a half-billion dollars.

According to Squiller, in order for the deal to be profitable for both sides, GTAT had to be able to produce a "sufficient number" of 262-kilogram boules of sapphire crystal meeting strict specifications required by Apple. Most sapphire producers create boules less than 100-kilograms in size, but GTAT and Apple hoped the larger scale would make production profitable for both companies.

"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's filing reads.

Unsurprisingly, the GT Advanced official lays the majority of the blame on Apple. In his view, GTAT assumed all of the risks in the deal, while Apple was responsible for none of it.

In particular, Squiller said that while GT Advanced committed to supplying a significant amount of sapphire to Apple, the iPhone maker was under no obligation to purchase any of it.

Squiller also said that fabrication costs at its facilities in Mesa, Ariz., and Salem, Mass., were higher than anticipated. In his view, the chief reason for this, again, was Apple.

According to Squiller, it was Apple that selected the fabrication equipment for the facilities, not GTAT. And the COO claims that the equipment selected by Apple "could not economically produce a product that Apple would accept."

"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," the COO wrote.

And while Apple could make changes to the equipment, specifications or materials used at any time, GTAT had no such capability. GTAT was also unable to negotiate changes to pricing with Apple, and the company sold sapphire material at a "substantial loss."

In all, GT Advanced incurred costs of around $900 million thanks to its project with Apple. Of that, $439 million was funded by Apple's prepayment

"If the pricing set forth in the Apple Agreements could not be renegotiated, GTAT would never realize a profit," Squiller said.

Apple hasn't officially given its side of the story in public, but Squiller's declaration gives an idea of how executives at the iPhone maker view the situation. According to Squiller, he suspects that Apple would say that:

  • The failure of the project was due to GTAT's inability to manufacture sapphire in accordance with the agreement
  • GTAT was free to walk away from negotiations at any point in 2013
  • Contrary to GTAT's assertions, Apple accepted "substantial risks" in the deal
  • GTAT mutually agreed to the specifications it failed to meet
  • "Apple did not wrongfully control or interfere with GTAT's operations"
  • Apple did not know how much money GTAT was losing as a result of the project

While Squiller would disagree with those assertions, he told the court that there is no reason for him to go into further detail, as both Apple and GTAT have agreed to a settlement to put the issue behind them.