Reportedly, GT Advanced Technologies (GTAT) has recently announced plans to close its sapphire plant in Arizona, which was expected to make scratch-resistant screens for Apple Inc. (AAPL).
The winding down of these plants could result in 890 job losses. Last week, GT Advanced Technologies filed for bankruptcy, leaving the market in shock. The company kept the terms of its agreement with Apple undisclosed because it could be required to pay $50 million in damages per disclosure. After that it filed another document asking the court to end its agreement with Apple because it was an unnecessary drain on its resources. Following today news, the shares of Apple’s sapphire glass supplier slipped 37.2% to 81 cents.
Though the reason behind the company’s bankruptcy filing is unknown, the court documents stated that GT Advanced failed to meet Apple’s metrics and was unable to produce enough material for the smartphone screens.
Back in Nov 2013, GT Advanced entered into an agreement with Apple per which the latter was to pay $578 million for building the abovementioned facilities. The amount would also have covered the manufacturing costs of Sapphire screen which otherwise would have been very expensive. Per the agreement, GT Advanced was to repay the money over a period of five years, starting 2015.
The first signs of a fall out were seen in September when Apple indicated that its iPhone 6 would use Gorilla Glass instead of the Sapphire screens. Apple might have decided against using sapphire because of its lack of elasticity despite being extremely hard and scratch resistant. The lower flexibility makes it more susceptible to cracks, and ultimately breakage. This is particularly true when screen sizes are larger, as in the latest iPhones. However, sapphire is better suited for smaller screens and therefore Apple plans to use it for its Watch.
However, details regarding GT’s supply arrangement with Apple and related financial deals have not yet been revealed. Apple said that it was focused on preserving jobs in Arizona and would continue to work with state and local officials as it considered its next steps.
Based in New Hampshire, GT Advanced Technology is a diversified company that specializes in providing crystal growth equipment and solutions for the global solar, LED and electronic industries. The company’s first-quarter results were weak with revenues decreasing 31% sequentially and 156.9% year over year to $22.5 million. Management believes that downing shutters on its Arizona facility will help the company to refocus its resources on its core business of selling sapphire furnaces and other products.
That being said, the emerging wearable and Internet of Things (IoT) market is likely to be a secular driver of sapphire demand. The technology appears to be in the nascent stages and, in fact, Apple is increasingly investing in the manufacture of the material and has also acquired exclusive licenses of some of GT Advanced’s technologies.
Apple sports a Zacks Rank #1 (Strong Buy), while GT Advanced Technologies has not yet been assigned a Zacks Rank. Other better-Ambarella Inc. (AMBA) and Avago Technologies (AVGO). All these stocks have the same Zacks Rank as Apple.
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