GT Advanced Technologies Inc Accuses Apple Inc. of ‘Bait And Switch’

GT Advanced Technologies GTAT

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

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About the Author

Marie Cabural
Marie received her Bachelors Degree in Mass Communication from New Era University. She is a former news writer and program producer for Nation Broadcasting Corporation (NBC-DZAR 1026), a nationwide AM radio station. She was also involved in events management. Marie was also a former Young Ambassador of Goodwill during the 26th Ship for Southeast Asian Youth Program (SSEAYP). She loves to read, travel and take photographs. She considers gardening a therapy.

8 Comments on "GT Advanced Technologies Inc Accuses Apple Inc. of ‘Bait And Switch’"

  1. B.S. if they did not understand their agreement with Apple they apparently have attorneys who do. I assume they know how to talk with an attorney and know if they should sign their name to a contract.

  2. Did the Chief Operations Officer just admit that he lost control of his company to a client? Were they asleep during negotiations or just blinded by the “potential” monetary gain? Where were their lawyers and accountants? Where was the board?

  3. Oct 9, 2014 Motley Fool
    Insiders(GTAT) have been unloading shares all year. That’s not as insidious as it sounds, and certainly management knew how risky the Apple deal would be.

    Gutierrez didn’t sell any GT stock during 2013, but he did set up Rule 10b5-1 trading plans on December 16, 2013 and March 14, 2014 for “financial diversification.” Rule 10b5-1 trading plans allow company insiders to schedule transactions ahead of time, while not in possession of material non-public information, in order to avoid the appearance of insider trading.

    The fact that Gutierrez sold $160,000 worth of stock at $17.38 per share the day before the Apple event is actually just a coincidence, as he has no discretion over the timing of the transactions. He still had nearly 170,000 shares after the transaction, but has sold almost 700,000 shares this year worth more than $10 million.
    COO Dan Squiller, had similar Rule 10b5-1 trading plans in place, also selling shares in early September.

    Since these plans were likely set up well in advance, probably before GT knew how bad things had gotten, it doesn’t appear that any laws were broken. What’s more feasible is that management knew the risks involved with the Apple deal, knew public speculation was driving massive share gains, and wanted to take the opportunity to diversify their personal finances.

    It’s highly unlikely that management knew that far in advance that the writing was on the wall; but they knew it was possible that the Apple deal could go sideways.

    http://www.fool com/investing/general/2014/10/09/did-gt-advanced-technologys-management-see-the-wri.aspx

  4. It was Apple that decided the buildout of the factory causing it to be late including the decision not to have backup generators. When it experienced power blackouts, the unfinished sapphire had to be scrapped and the growing process started all over again.

    It was Apple that decided which furnaces GTAT had to buy/use.
    It was Apple that specified the process to grow the sapphire and had their own people overseeing it at the factory.
    When the sapphire was finished, Apple did not buy it because it did not meet their standards so GTAT had to eat all the costs.

    Since Apple had complete control over every aspect of the venture you would think Apple would accept more responsibility for it’s failure and show GTAT some leniency instead of withholding the final loan installment or exercising accelerated repayment clauses.

    Read GTAT’s Bankruptcy Declaration. It’s very telling to see how Apple treats their suppliers with such little regard http://www.kccllc net/gtat/document/1411916141028000000000004

  5. Wow, 88% institutional ownership. Never thought smart money could get it so wrong.

  6. Nobody forced GT into this agreement. They were obviously desperate and made a bad deal.
    They could have simply said no. Instead they want to pass the buck and blame AAPL for their inefficiencies. In the interim; how about the sec investigation into GT???????? Who is the criminal here?

  7. How else would you make your “apple” profits in billions. The only way is to suck the blood out of other companies so apple can remain competitive with their bendgate phones. I guess they ditched them in this hell where GTAT dropped from 10 bucks to 50 cents because GTAT could not build a saphire which will “bend” in harmony with iphone

    Shame on apple, it is time to ditch them

  8. “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,”

    Apple called all of the shots in this failed venture and now they’re saying GTAT is being unreasonable in it’s bankruptcy declaration, putting Apple in a bad light.

    Oh boo hoo Apple. Why don’t you take your own advice… put on your big boy pants and take it like a man!

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