Apple Inc. (NASDAQ:AAPL) allegedly committed a “bait-and-switch” strategy in its sapphire glass manufacturing agreement with GT Advanced Technologies Inc (NASDAQ:GTAT) based on the latest unsealed bankruptcy documents.
Daniel Squiller, the chief operating officer of GT Advanced Technologies Inc (NASDAQ:GTAT) submitted a court declaration blaming Apple Inc. (NASDAQ:AAPL) for its losses that resulted to its bankruptcy.
Apple had inordinate control over GTAT
According Squiller, Apple Inc. (NASDAQ:AAPL) had “inordinate control over GTAT’s liquidity and operations (including control over product specifications) and decision making.
He emphasized that the iPhone makers strategically structured its transaction with GT Advanced technology Inc (NASDAQ:AAPL) in such a way that its role would be more like a lender than a customer.
Squiller said Apple Inc. (NASDAQ:AAPL) considered the payments it made for the products of GT Advanced Technologies Inc (NASDAQ:GTAT) as a loan and has taken liens on the assets of the glass sapphire manufacturer to secure repayment of those loans.
In addition, Squiller emphasized that Apple Inc. (NASDAQ:AAPL) also embedded itself in the operations of the GT Advanced Technologies Inc (NASDAQ:GTAT) at its Mesa facility. The tech giant forced the glass sapphire manufacturer to divert an unreasonable amount of its cash and corporate resources to the facility, which affected its viability as a whole.
Furthermore, Apple Inc. (NASDAQ:AAPL) also gained control of GTA’s Salem facility and made it as an experimental and development center for its project. As a result, GTAT has been unable to use its facility to generate other revenues.
According to Squiller, the fabrication costs of sapphire material grown in its Mesa and Salem facility furnaces were higher than expected. He explained that the primary reason was the majority if the fabrication equipment selected by Apple Inc. (NASDAQ:AAPL) for sapphire material could not produce a product economically and acceptable to the tech giant.
GT Advanced Technologies Inc (NASDAQ:GTAT) was required by Apple Inc. (NASDAQ:AAPL) to obtain consent before making changes to its equipment and processes.
Squiller said, “Apple, at least initially, was not willing to permit fabrication equipment changes that would economically produce acceptable products.”
GTAT was forced to sell sapphire material at a significant loss
According to Squiller, GT Advanced Technologies Inc (NASDAQ:GTAT) was forced to sell every unit of sapphire material at a significant loss because it cannot negotiate changes to the pricing established by Apple Inc. (NASDAQ:AAPL) in the transaction documents.
“GTAT’s losses would have increased substantially in 2015 when the price for finished sapphire material is scheduled to decrease under the agreements with Apple,” said Squiller.
Squiller emphasized that the combined impact if the actions of Apple Inc. (NASDAQ:AAPL) and its unwillingness to negotiate changes in the agreements prompted GTAT to reluctantly file for chapter 11 to protect the value of its business by removing itself from the iPhone maker’s control.
He said GTAT was shut out of the global market for its valuable sapphire material because of the non-competition provisions of the Apple agreement.
“With a classic bait-and-switch” strategy, Apple presented GTAT with an onerous and massively one-sided deal in the fall of 2013,” said Squiller.
Apple’s response to Squiller’s declaration
In a separate filing, Apple Inc. (NASDAQ:AAPL) said Squiller’s declaration contained numerous statements that it believes to be untrue, irrelevant and inflammatory.
“Much of the Supplemental Squiller Declaration goes far beyond what was reasonably necessary to describe the Debtors’ current financial situation and instead includes gratuitous characterizations of Apple’s motives, negotiating tactics, and business practices,” according to the iPhone