A new report from the Wall Street Journal reveals some interesting background on the breakdown between Apple and GT Advanced Technologies, pointing to the problems and challenges the erstwhile sapphire supplier faced in trying to meet the terms of its agreement with Apple. Apple originally began using sapphire last year for the iPhone camera lens and Touch ID sensor, and after having success with the material, began looking for a larger supplier that could provide enough sapphire to cover the full iPhone screen. Apple originally discussed buying 2,600 sapphire furnaces from GT, which was developing a new furnace design that could yield larger boules and therefore greater quantities of sapphire. However, Apple later reportedly decided that it did not want to pay the 40 percent margin for the furnaces, and began shopping around for a company that could supply sapphire at the prices Apple was willing to pay for the material.
After failing to find a viable supplier, Apple chose to set up GT Advanced Technologies to produce the sapphire itself, agreeing to lend them $578 million to build 2,036 furnaces in a new facility that Apple would build in Mesa, Arizona and lease to GT for $100/year. However, the new report reveals that the deal turned out to be troubled from the very beginning, as GT had no experience mass-producing actual sapphire, and the first 578-pound cylinder it produced was “flawed and unusable.” GT also reportedly mismanaged the project, hiring hundreds of workers without placing them in clearly defined roles or telling them who they reported to, and failing to have policies in place for attendance, leading to an “unusual number of sick days.” Managers at GT also authorized “unlimited overtime” to fill furnaces with material to grow sapphire – a growing process that takes about 30 days to complete – however the company had not yet manufactured enough furnaces to fill, resulting in many workers effectively being paid overtime to do nothing more than sweep floors once the initial furnaces had been prepped and filled. Many boules that were produced reportedly continued to be unusable, and an area of the Mesa factory eventually became known by employees as the “boule graveyard.”
In their court filings, both companies blamed each other for GT’s ultimate failure. Apple told creditors that GT failed due to “mismanagement” and that it “never wavered from our commitment to make the project successful.” GT claimed it lost three months of production due to Apple’s failure to build the facility to GT’s specifications and provide adequate power, and to meet Apple’s own changing specifications for the sapphire, alleging that it cost the company more than twice the financing that Apple had provided in order to get the factory up and running. Further, GT stated that Apple had turned the company “into a captive supplier, bearing all of the risk and all of the cost,” making it impossible to turn a profit due to Apple’s “dictated pricing.” While Apple and GT reportedly tried to renegotiate terms in late September — which included an offer by Apple to renegotiate loan repayment schedules, raise the price it would pay for sapphire and relax its exclusivity requirements — GT Advanced Technologies filed for bankruptcy less than a week following Apple’s offer.