Why You Shouldn't Blame Apple for the Fate of GT Advanced Technologies

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Oct 13, 2014

Cupertino tech mammoth Apple (NYSE: AAPL) has again attracted the attention of the media as one of its partners prepares for bankruptcy and is blaming Apple for its ill fate. GT Advanced Technologies, the manufacturer of sapphire glasses for Apple devices has decided to file Chapter 11 bankruptcy since its agreement with the tech giant has caused significant damage to the company’s functioning capabilities. The distressed company want to break the contract, and is also thinking of taking Apple to the court as it believes the iPhone maker’s terms and conditions of the contract are “oppressive” and “burdensome”. So, was it really Apple’s fault? Let’s closely analyze the situation.

The impact of the incident
Among the manufacturing units that GT Advanced Technologies runs, it will be closing two – one located in Arizona and another located in Massachusetts. The closures will also be followed by job cut of as many as 890 employees. Presently the company has a total of 1,100 employees and it’s going to lay off 81% of the work force – that’s tragic and alarming.

The deal that the two companies had was worth $578 million – Apple funded GT’s business with the amount and in return GT was going to supply sapphire displays over the course of five years. However, things turned ugly for GT when they realized they were spending as much as $1 million every day in operations.

However, all this doesn’t mean the company will close its operations altogether. According to President and CEO of GT Advanced, Tom Gutierrez, the smartphone component maker still has a “strong and fundamentally sound underlying business” and the management believes if the company manages to come out of the contract with Apple, it will be able to sustain itself and grow again, but gradually. In a statement, Tom said, “We are convinced that the rehabilitative process of chapter 11 is the best way to reorganise, protect our company and provide a path to our future success.”

Is this Apple’s fault?
The entire incident raises a lot of questions on Apple’s methods of functioning and dealing with its suppliers. So, in this case, the following points need to be considered. When GT came out with the announcement, every stakeholder, including Apple, were shocked. In fact, according to a Wall Street Journal report, Apple was helping GT to remain solvent and even attempted to help GT earn the last of the $578 million payment, worth $139 million.

However, despite rigorous efforts, GT failed to meet the contractual requirements to be worth of receiving the $139 million payment from Apple. The report also mentioned the fact that Apple could have asked GT to repay its loans when the tech mammoth realized that GT’s cash position was going weak. But, it didn’t ask for any such repayments and continued to assist GT. Moreover, the terms and conditions that are being referred to as “oppressive” and “burdensome” were known to Gt right from the beginning. May be GT was unable to assess its capacity to honor the agreement.

Apple had entered the deal with all possible good intentions. It had bought the Arizona plant and then leased it out to GT. The state had offered Apple several tax breaks and several other incentives which could have provided the company with millions of dollars in savings. So, let’s be clear about Apple’s intentions. Like all contracts, this contract too had clauses and adhering to the clauses is a part of the professional culture. That’s what Apple did. Considering all this, the entire blame can’t be put on the iPhone maker.

Parting thoughts
Surely the series of events that have cropped up are unfortunate. Had things gone right, the state of Arizona, GT and Apple would have been greatly rewarded. GT is not wrong in seeking a release from the contract because its losses are piling on while adhering to the conditions of the deal. However, this doesn’t mean the blame is on Apple. Let’s keep a close watch on the incident and see how things turn out for the tech mammoth and the distressed component maker.