The Wall Street Journal has revealed key details of the failed deal between Apple and sapphire supplier GT Advanced Technologies that show why the agreement collapsed and how GT managed to run itself into bankruptcy while trying to meet Apple’s standards.
A previous report from the Journal revealed that GTAT had been unable to provide the iPhone 6 displays it had promised Apple, but now we have even more information on why that demand was so hard to meet.
Originally Apple intended to buy the massive new sapphire furnaces GTAT had designed, but eventually Apple decided to simply ask GTAT to handle the production entirely. Apple would own the factory, help GTAT finance the furnaces, and then lease the space to the supplier for a measly $100 per year.
Other elements of the agreement eventually came to light, including a $50 million fine that Apple would impose on any supplier that leaked its product details ahead of an official announcement.
According to former employees, hundreds of people were hired to work in GTAT’s sapphire factory without any type of oversight or leadership, and over 100 of them had no idea who they even reported to when they showed up to work each day. These employees were authorized for unlimited overtime and faced no penalty for missing work.
Power outages and construction delays also posed a problem for the factory, which reportedly missed about three months of production due to such issues.
None of these issues, however, posed the largest setback to GTAT’s efforts.
The biggest issue with the agreement between the two companies stemmed from the fact that before being approached by Apple, GTAT had never actually mass-produced sapphire crystal. That inexperience led to a seriously flawed product.
In the images above you can see six different cylinders (called “boules”) of sapphire, all of which suffer from massive cracks and other defects, making them totally useless for Apple’s purposes. Those wasted boules are not made cheaply or quickly. Each one takes about a month and costs around $20,000 to produce. At 578 pounds, they were over twice as large as any boules that had previously been produced.
Those six boules weren’t the only ones that ended up being defective. The Journal’s report says that over half of the sapphire produced by GTAT for Apple ended up in the same position.
This is where the more familiar parts of the story start coming into play. Struggling financially after setbacks and failures, GTAT found out in April that Apple was now unwilling to make a payment of $139 million that GTAT needed to stay afloat.
From there, things only got worse. Two months after Apple withheld the payment, GTAT CEO Thomas Gutierrez met with Apple executives to explain the problems and delays in production. It was then that GTAT finally decided to scrap the massive 578-pound boules it had failed to produce reliably in favor of smaller 363-pound versions.
These were easier to produce and led to fewer issues in the creation of the sapphire, but mismanagement continued to plague the company. At one point, the Journal reports, a manager took 500 iPhone-sized sapphire bricks worth hundreds of thousands of dollars and accidentally threw them away. The bricks were eventually recovered, but the issues that led to the incident were never addressed.
In September, GTAT’s CEO offloaded most of his stock in his own company, gaining over $1.2 million.
At the beginning of October, after the debut of the iPhone 6 and 6 Plus (which shipped without sapphire displays) Apple agreed to pay GTAT $100 million of the $139 million it owed. Apple also tried to help GTAT out by changing some terms of their contract to allow GTAT to bring in additional money by selling furnaces to other companies. The Cupertino company even offered to pay more money for sapphire from GTAT in 2015, despite the latter’s inability to deliver during 2014.
A day before the talks for that agreement were supposed to take place, GTAT filed for bankruptcy. Later that month, GTAT informed over 700 employees that they would be out of work by December. The fallout the followed between the two companies involved a lot of back-and-forth over who was at fault, with GTAT’s CEO calling Apple’s contract a “bait-and-switch strategy,” while Apple responded by telling the supplier to put on its “big boy pants” and accept what happened.
GTAT reached a deal with Apple this month to sell its furnances and pay up to $290,000 per furnance to recoup Apple’s payments for sapphire shipments that never arrived.
Overall, Apple is said to have received only 10% of the total sapphire it ordered.
