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I don't see much controversial here. Apple's practice has long been to underwrite capital equipment for their suppliers, so that the supplier can afford to man
by MCRed 12y ago
I don't see much controversial here. Apple's practice has long been to underwrite capital equipment for their suppliers, so that the supplier can afford to manufacture the item that Apple needs. This makes sense because the supplier is the one with the expertise to make the product. For instance, when the machining for the iPhone 4 case was not producible with current equipment, only equipment designed for making prototypes, Apple bought 1,000 of these very expensive machines for Foxconn.
Apple is not a sapphire manufacturer, but GT is, and this afforded GT the opportunity to go into this business with minimal capital risk. GT has expertise that Apple does not.
It sounds like GT thought the new process was ready for production and all they needed was the furnaces and plant, and then they failed to bring the plant on line and produce what was needed.... and is now blaming Apple for it.
Since Apple provided the money to build the plant, an exclusivity agreement doesn't seem "onerous" in the least. The "below market" prices allegation also seems appropriate-- given that GT purported to have a new technology that changed the economics making sapphire viable for new uses. The main challenge with sapphire is that it is expensive, and hard to make large pieces-- such as you would need for the front display of an iPhone.
The idea that Apple wielded "all the leverage" is silly. GT could simply walk way. There is no leverage in the case when the other party is not beholden or forced to do business with you. If GT had such a killer new process as to make phone faces at reasonable prices, then they could have gone to Motorola, Samsung or other potential customers. How does Apple have all the leverage when there's no requirement for GT to sign the deal?
It really sounds like this company bit off more than it could chew, couldn't meet the obligations it agreed to, and is now having sour grapes.
- acveilleux 12y agoExcept that it sounds like GT was a sapphire production equipment manufacturer.
- S_A_P 12y agoThis is true, but it must of had aspirations of being a supplier or they would have said, "sorry production is beyond our area of competency, but we're happy to sell a supplier these furnaces". I think that GT likely saw this as a low risk way to grow their business gambled and lost. Further, what does apple have to gain by GT filing bankruptcy? Looks like they pretty much got screwed too and are out hundreds of millions here.
- shakethemonkey 12y agoBankruptcy isn't "sour grapes", it is the expected result when Apple's concessions were insufficient to extricate the company from its troubles. From the reading of this article, it appears that Apple's terms boxed this much-smaller company in, leaving them with insufficient margin for error. This sentence is particularly telling: "Apple chose the facility, negotiated all the contracts to design and build it, and GT had no direct contact with the Apple subcontractors." Perhaps such a contract should never have been agreed to, but it is an example of heavy-handedness by the stronger partner in the relationship.
- ghshephard 12y agoTheir is nothing so far revealed that indicates any heavy handedness on Apple's part. So far, all we've seen is a contract that two parties entered into of their free will, both seeking to profit from said contract. Now, if it turns out, Apple had threatened GT with financing one of their Saphire Competitors to allow them to drive GT out of business if GT didn't enter a contract with Apple - that would be heavy handedness. But there is no evidence of any such behavior.
- shakethemonkey 12y agoIf in fact the sentence I highlighted is true, it is very much heavy-handedness on the part of Apple. From the context, it is unlikely to be false, though possible.
- ghshephard 12y ago"Apple chose the facility, negotiated all the contracts to design and build it, and GT had no direct contact with the Apple subcontractors." You do understand the Apple purchased the facility for $113 million dollars of their own money, right? GT's job was to install furnaces, run them, and deliver sapphire of a particular size and quality, which they were unable to do. And, they did so with money loaned to them by Apple. Effectively, Apple took 100% of the risk, and when things went south, GT (after their CEO made a few million dollars on the stock), declared bankruptcy and forced Apple to settle GT's debt.