Apple Inc. (NASDAQ:AAPL)’s flagship smartphones, the iPhone 6 and 6 Plus, were rumored to have sapphire displays. The Cupertino company had chosen GT Advanced Technologies Inc (OTCMKTS:GTATQ) as sapphire screen supplier for its new iPhones. Apple customers have long complained about cracked and scratched displays. Sapphire, tougher than concrete, was the material that could solve the problem.The Wall Street Journal has uncovered the remarkable details of Apple’s billion dollar bet that paid off almost nothing.
The inside story
However, consumers and investors were disappointed when Apple released the iPhone 6 and 6 Plus without sapphire screen. Less than a month after the iPhone 6 launch, GT Advanced Technologies, the company that was supposed to supply the sapphire, filed for bankruptcy. GTAT hadn’t informed Apple before the bankruptcy filing, so the Cupertino company was surprised at the news. In fact, Apple was at the time negotiating changes in its contract with GTAT to ease the financial strain on the New Hampshire company.
Last year, Apple and GT Advanced Technologies reached a $1 billion deal to build a sapphire manufacturing factory in Arizona. Apple has always demanded high-quality and low prices. The iPhone maker initially wanted GTAT to make furnaces that would be required for sapphire production, and produce sapphire in-house. But Apple and GTAT later decided that GTAT would manufacture sapphire displays. GTAT had little experience in sapphire production, but it could not afford to lose an opportunity that could add billions of dollars to its revenue.
Apple was impressed by GTAT’s track record to build successively bigger furnaces. However, the now-bankrupt company’s 578-pound cylinder was unusable and flawed. The company hired hundreds of workers in just a few days, but it had not made enough furnaces yet. So, most of the workers had nothing to do. Many of them would simply sweep the floors over and over.
In August, it became clear the iPhone 6 won’t have sapphire screen
In its bankruptcy filing, GTAT said it lost about three months of production to delay in building the manufacturing unit and power outages. But Apple told GTAT creditors that it failed because of its “mismanagement,” rather than power outages. In June, just a few months before the launch of the iPhone 6, GTAT CEO Thomas Gutierrez told Apple executives about production problems.
So, Cupertino and Gutierrez agreed that GTAT would make 363-pound cylinders instead of the 563-pound ones to get the formula right. By August, it had become clear that sapphire won’t be used in the iPhone 6 and 6 Plus. But Apple wanted to get as much sapphire as possible. Unfortunately, the company received only 10% of sapphire it was originally promised.
Apple shares fell 0.69% on Wednesday to close at $114.67.
