Home Technology GT Advanced Deal Warning To Apple Suppliers Who Don't Measure Up

GT Advanced Deal Warning To Apple Suppliers Who Don't Measure Up

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Warning: being a supplier to Apple Inc. (NASDAQ:AAPL) can be hazardous to a corporation’s health, notes Kelly Hodgkins in an  article for MacRumors.com.

As Apple and its supplier, GT Advanced Technologies Inc (OTCMKTS:GTATQ), filed for divorce, the nasty, controlling and manipulative aspects of the relationship started to spill out into the public domain. Apple keeps most of its supplier relationships secretive, forcing what appears to be the equivalent of a one-sided prenup agreement down the throats of their suppliers. If the supplier doesn’t like the terms of the treatment they can find another relationship with a sugar daddy. Or as Apple told GT Advanced: “put on your big boy pants and accept the agreement,” indicating that what might be considered draconian were standard for all suppliers.

Apple tried to gain monopoly with GT Advanced

A recent Guardian article on the topic also provides unique insight into the deal, noting that Apple Inc. (NASDAQ:AAPL) not only forced GT Advanced Technologies Inc (OTCMKTS:GTATQ) to supply sapphire products used in production of its phones at a discount, but by tying up the largest supplier of the equipment used to manufacture the sapphire it also might have eyed a benefit of locking up the market so rivals such as Samsung couldn’t compete. To encourage agreement, Apple dangled the fruits of additional business and financing assistance in front of suppliers.

This concept is not without precedent.

In 2005 Apple Inc. (NASDAQ:AAPL) purchased massive amounts of flash memory for its iPod Nano music player, demanding an exclusive deal with Toshiba, manufacturer of the hard drive, which in effect shut out rivals.

Apple’s asset loss

While Apple doesn’t own manufacturing plants, it has dropped nearly $12.5 billion in “plant, property and equipment,” the Guardian article noted. This only makes since when you consider the control factor. In helping its suppliers finance their business, it can likely demand much more aggressive terms – terms that are so aggressive that a supplier might actually lose money on each component it produces, as was the case in the GT Advanced / Apple deal.

Suppliers of Apple note a degree of respect that working with the company generates. “The value lies in the fact that Apple is recognized as having a high-quality build spec, so a relationship reflects well on that supplier’s products,” one unnamed executive told the Guardian.

In her MacRumors article, Hodgkins sums up what can be viewed as a difficult relationship, as getting in deep with Apple included allegations of deceptive “bait and switch” business practices where GT Advanced was led to believe the relationship would blossom into more than it was.

At the end of this relationship, GT Advanced Technologies Inc (OTCMKTS:GTATQ) failed to measure up to Apple Inc. (NASDAQ:AAPL)’s demands for suitable quality in the appropriate quantity. The story appears to be one of going all in, trusting in a relationship, but then getting ditched when performance didn’t measure up.

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Sheeraz Raza

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