Sapphire glass maker's woes caused by Apple relationship 'breakdown'

Analysts have suggested the collapse of sapphire glass manufacturer GT Advanced Technologies may have been caused by a "breakdown" in relations with Apple.

The iThing giant appeared to be determined to use the scratch-resistant wonder material in its new iPhones and the Apple Watch, but those plans were thrown into doubt on Monday when GT filed for bankruptcy protection.

Life was looking pretty peachy for GT until Apple unveiled the iPhone 6 and 6 Plus – and neither used sapphire glass. Investors began to worry and GT filed for bankruptcy protection. Its stock plummeted by $10.25, sliding by almost 93 per cent down to just 80 cents.

GT reportedly received a $350m loan to help build a sapphire glass factory in Mesa, Arizona. Pavel Molchanov, an energy analyst at Raymond James, said it made just $31m in the first half of 2014 from its secondary business, solar panels.

“This would be a major liability and GT is in no position to write a $350 million check,” he opined

Gilford Securities‘s Nimal Vallipuram speculated on Tech Trader Daily: "While [the bankruptcy filing] is utterly unexpected we believe this is tied to possibly Apple requesting prepayment of some loans due to GTAT [GT Advanced Technologies] not meeting performance targets related to sapphire manufacturing.

"When Apple announced its new products on September 9, it was clear that GTAT might have to revise down their revenues from sapphire in 2014 as sapphire was used in watches and not in phones. But even after accounting for this, this outcome is radical and totally unanticipated."

There are still question-marks surrounding this explanation of events, he added.

"What we do not understand is why the two companies did not restructure the agreement to buy some time for GTAT and how did this relationship potentially breakdown to this extent," the analyst continued.

"As a result we are forced to suspend our rating as we try our best to decipher this situation. We will be doing just that in next few days and weeks to untie this knotty issue to find the underlying reason for this action by the company."

Let's hope his analysis is tighter than his prose. Canaccord Genuity‘s Jonathan Dorsheimer also suggested that Cupertino had coshed GT.

"We believe the bankruptcy signals a failure by GT to meet its own objectives with Apple, which we believe will likely weigh on the company’s ability to remain a sapphire equipment or material provider going forward," Dorsheimer said.

"Given the indebtedness, it is unclear to us what will become of the Mesa, Arizona, facility and GT as a going concern." ®