30 Dec 2014
Bankruptcy court approves deal under which Apple will receive portion of equipment sales to repay the $439M GTAT owes the consumer electronics giant.
GT Advanced Technologies (GTAT) is back selling furnaces to make sapphire boules, following bankruptcy court approval of an amended deal with Apple.
The Merrimack, New Hampshire, company entered chapter 11 proceedings in October after the initial plan to make millions of scratch-proof sapphire covers for iPhones turned sour. But by that time, Apple had already loaned GTAT $439 million to finance the construction of more than 2000 furnaces to grow huge sapphire boules.
The court-approved settlement includes a plan under which Apple’s loan will be repaid through a kind of royalty on each sale of a GTAT furnace built at the Mesa, Arizona, site where GTAT had been planning to grow the giant sapphire crystals.
For each of the first 500 furnaces sold, Apple is set to receive $169,000, for a total $84.5 million. The repayment amount increases to $224,000 for the next 500 furnaces, and again to $262,000 for the following 500.
If that goes according to plan, $327.5 million of Apple’s loan will have been repaid. The remaining $111.5 million will rely on a $295,000 repayment on each subsequent furnace sale – meaning that GTAT will need to sell at least 1878 furnaces to fully repay Apple.
“[The company] is now pursuing ASF furnace opportunities for sapphire cover glass applications across the broader smartphone market as well as ongoing opportunities in the LED and industrial markets,” announced GTAT.
Under the new deal with Apple, signed December 15, all the previous exclusivity restrictions have been lifted – meaning that other makers of sapphire are free to buy the furnaces to grow the crystal material for use in tablets and smart phones made by other electronics firms.
Apple has not been completely put off the idea of using sapphire in the future. The settlement agreement mentions ongoing meetings with GTAT about the development of sapphire boules weighing more than 165 kilograms.
Problems with the cost-effective production of such large crystals meeting Apple’s requirements were a major factor in the decision not to use sapphire in the iPhone 6, and the GTAT bankruptcy filing that followed.
As part of the amended deal, GTAT has also been granted a rent-free lease of the Mesa facility through the end of 2015. By that time, Apple is expecting the vast majority of its $439 million loan to have been repaid.
GTAT’s CEO Tom Gutierrez said in a company announcement: "We are focused on executing on our business plan which includes marketing and selling our market-leading ASF sapphire growth technology. Since we have re-entered the market, interest in our sapphire technology has continued to grow."
Gutierrez added that following drastic measures to stop the company losing money – including the loss of hundreds of jobs in Mesa and elsewhere – GTAT was now in a position to move forward with its renewed focus on furnace sales, rather than as a captive manufacturer of sapphire for Apple.
“Since our chapter 11 filing, we have taken several important steps to significantly reduce our cash operating expenses and protect our cash position, which was $96.7 million as of December 19th,” reported the CEO.
“At the same time we have continued to invest in our market-leading technologies. We are making good progress in our efforts to secure debtor-in-possession financing which we believe will provide [GTAT] with sufficient liquidity to continue to implement our business plan.”