|
 GT Advanced has offered little explanation as to what prompted its
surprise bankruptcy filing on Monday. The company also did not
respond to requests for comment.
Analysts and industry insiders, however, attribute GT Advanced's
apparent cash-flow problems to the unfavorable terms of a deal with
Apple that involved building an expensive Arizona factory to make
scratch-resistant sapphire glass exclusively for the Cupertino-based
company, but which Apple was under no obligation to buy.
Seemingly lopsided deals are common among companies vying to supply
components for the hundreds of millions of iPhones and iPads that
Apple sells each year.
Being tapped by Apple is often Silicon Valley's equivalent of the
mythical Midas Touch as it multiplies a supplier's revenues and
makes its technology more desirable to other potential customers.
But the risks of being involved in the next iPhone can eclipse the
rewards.
Looking to potentially switch from Corning's <GLW.N> Gorilla glass
to sapphire covers on its iPhones, Apple spoke with several
manufacturers who balked at the terms it was offering before it
settled on GT, according to a person familiar with the matter, who
declined to be named as they were not authorized to speak to the
media.
One manufacturer that met with Apple walked away from the potential
deal after considering the possibility that Apple would insist on
even lower prices in the future, which would squeeze margins, the
person said.
Under the terms of the supply deal eventually struck with GT
Advanced in November, Apple said it would provide GT Advanced a
prepayment of about $578 million to help bankroll the Arizona
factory, which would then be paid back to Apple over five years
starting 2015.
The lump sum would be paid in instalments contingent on GT meeting
unspecified operational targets.
Apple's arrangement to help finance GT Advanced's new factory is not
unusual for the handset maker.
In late 2011, Apple invested around $1 billion in an LCD factory
operated by Japan's Sharp Corp to make panels for the iPhone
4. The phone, however, didn't sell as well as predicted after its
release in October 2012, and Sharp was forced to temporarily halt
production.
"Having an exclusive factory for one customer means you don't have
the same reassurance as producing parts in response to demand. On
the contrary, it's high risk," said a person familiar with Sharp's
plans.
[to top of second column] |
"The volume (produced by Apple) is very high so it can bring the
factory to 99 percent of capacity, but if there are no orders then
the factory will lie idle," the person said.
RELYING ON APPLE
The details about what happened between GT Advanced and Apple remain
unclear. A person familiar with Apple's involvement in the matter
said the company had worked in good faith with GT Advanced to help
it meet its operational targets.
Several analysts said Apple had likely made a decision that burned
its supplier.
Kevin Starke, analyst at CRT Capital, speculated that Apple, in
forgoing sapphire glass in the iPhone 6, had effectively dealt a
financial blow to GT.
"We can surmise, of course, that something has gone dreadfully wrong
in the company's once-promising relationship with Apple," Starke
wrote in a note to clients on Monday.
"We could speculate that some milestone or other requirement laid
out in the operative documents has been broken or become the topic
of a dispute between the parties." Industry executives and
analysts said GT's bankruptcy should be a warning to companies to
not hitch their future to one client.
"You swallow the Apple order, but it may not taste sweet," said a
person whose company supplies Apple.
"It is like using Apple to build your resume. Once you supply for
Apple, you use that to find more customers and you can diversify."
Les Santiago, an analyst at IT consultancy IDC, said the strategy
adopted by chipmakers Dialog Semiconductor, and Cirrus Logic, which
get close to 80 percent of their revenue from Apple, offers an
alternative to the GT story.
Both firms have used their windfall from Apple to expand their
product lines and expand their customer base, he said.
(Additional reporting by Edwin Chan in SAN FRANCISCO, JR Wu in
TAIPEI and Sophie Knight in TOKYO; Editing by Miyoung Kim and Miral
Fahmy)
[© 2014 Thomson Reuters. All rights
reserved.] Copyright 2014 Reuters. All rights reserved. This material may not be published,
broadcast, rewritten or redistributed.
 |
