Surprise!
In a statement given to The Wall Street Journal, Apple said, “We are focused on preserving jobs in Arizona following GTAT’s surprising decision and we will continue to work with state and local officials as we consider our next steps.”
Details concerning GTAT's bankruptcy and larger business situation are few and far between. The Apple world first took note of the company when Apple and GTAT announced the joint operation in Arizona. Under that deal, Apple would pay GTAT some US$578 million in four installments to outfit a factory Apple owned with thousands of sapphire furnaces. GTAT would operate the furnaces, while Apple owned the furnaces.
Many expected Apple to use the sapphire for the iPhone 6 line, though Apple never indicated it would do so. Apple does use sapphire to cover its Touch ID sensors on the iPhone 5s/6/6 Plus, and to cover the back camera on the iPhone 6 and 6 Plus. Apple will also be using sapphire on at least part of its Apple Watch product line.
But Apple didn't use sapphire to cover the display on the iPhone 6 line, and earlier on Wednesday it came to light that GTAT CEO Tom Guiterrez sold some 700,000 shares of his company's stock since February of 2014. Some of those shares were sold in early September, the day before Apple launched the iPhone 6 without sapphire, when $GTAT fell from $17 per share to less than $15. In Mr. Gutierrez's defense, GTAT said that the September sale of 9,000 shares GTAT stock was scheduled back in March.
Following the bankruptcy announcement, $GTAT plummeted to as little as $0.75 per share, and it is currently trading at $1.19 per share, down $0.02 (-1.65 percent) as of this writing.
Of Gomer Pyleian Proportions
Apple's statement that GTAT's bankruptcy decision was “surprising” is interesting in that it indicates GTAT made that decision without first informing Apple, the company that invested almost half a billion dollars with GTAT. Note, however, that Apple said it was surprised by the “decision,” rather than the “announcement.” We don't know when Apple was actually informed of the decision.
Also note that I used the phrase “almost half a billion dollars” because Apple reportedly withheld the last installment of its payment when GTAT failed to meet technical hurdles or some other milestones set out in the original agreement. That payment was roughly $139 million of the $578 million, meaning Apple paid out $439 million. For those keeping score at home, the whole thing could result in Apple taking ownership of the furnaces already set up in its plant.
Note that Apple could buy GTAT for $154 million with its current stock price, only $15 million more than was left on Apple's contract for the company.
The future of Apple's sapphire involvement remains unclear, just as is Apple's involvement with GTAT itself. It's hard to imagine, however, that Apple's executives can be pleased about this sort of surprise. Horse heads have been left in beds for lesser offenses involving less money, at least in the movies.
On the other hand, GTAT may just need time to reorganize its finances. Remember that Apple chose GTAT in the first place, and Apple has a track record of vigorous vetting and picking only the best companies with which to work. Based on that alone, GTAT is, or at least was, doing a lot of things right.
There is so much up in the air right now about this situation, and so very little known. In the grand scheme of things, GTAT's bankruptcy could be a hiccup in Apple's greater investment in sapphire, or it could become—in hindsight—the beginning of the end of that very same investment.
Because Apple is such a big deal, however, we're likely to see more and more information dribble out as the financial and business press dig for more details. Accordingly, this story is likely to become even more interesting before it's over.
Image made with help and help from Shutterstock.
Full disclosure: The author of this piece has been long on $AAPL with a tiny holding for more than a decade. The author also picked up a few shares of $GTAT (as a pure gamble) when they collapsed following the bankruptcy announcement. None of the author's miniscule stock holdings amount to much in the way of total assets, nor were they in any way an influence on the writing of this, or any article about any company.