Since GT Advanced Technologies declared bankruptcy in early October, the vast majority of documents detailing its deal with Apple to supply sapphire crystal have been under seal.
On Tuesday, Judge Henry Boroff issued an order unsealing a statement signed by GTAT COO Daniel Squiller as well as its attached documents, which include details on the reasons GTAT filed for bankruptcy and its business relationship with Apple, its largest creditor. On Friday, the Squiller statement entered the public record.
The statement includes several documents that are rarely seen, including a complete Apple confidentiality agreement as well as a “master development and supply agreement.” Squiller pointed to those documents as evidence that GTAT’s deal with Apple was unsustainable and the primary reason that the company declared bankruptcy.
Even if you’re uninterested in GT Advanced Technologies, there are a number of details about how much power Apple exercises over its suppliers.
Squiller says that Apple did not ever really enter into negotiations, warning that GTAT’s managers should “not waste their time” negotiating because Apple does not negotiate with its suppliers. According to GTAT, after the company balked, Apple told GTAT that its terms are standard for other Apple suppliers and that GTAT should “put on your big boy pants and accept the agreement.”
Because most of Apple’s hardware suppliers are based in Asia, it’s hard to tell whether the details described in the GTAT contracts with Apple are standard, but it’s not hard to believe that Apple has a lot of power over its suppliers and largely gets to dictate its terms.
Some of the terms include:
- A $50 million penalty for breach of confidentiality per occurrence.
- No manufacturing processes could be modified by GTAT without Apple’s prior consent but GTAT must immediately implement Apple’s suggestions.
- GTAT must fulfill any purchase order placed by Apple on the date selected by Apple or purchase substitute goods at GTAT’s expense.
In addition, because of the way the loan was structured, the famous Mesa, Arizona plant was allegedly built without GTAT’s input, which resulted in the decision to forgo essential backup power generators because they were too expensive. Apple also embedded its own employees at the Mesa plant who “assumed a level of authority” and had to be reminded not to order GTAT employees around.
Squiller said that initially [company]Apple[/company] wanted to purchase sapphire furnaces from GTAT, but ended up offering a different deal: A new structure where GTAT borrowed money from Apple to purchase sapphire furnace components in order to supply Apple with sapphire crystal. Apple also prohibited GTAT from doing business with other manufacturers or suppliers working in consumer electronics.
In his statement, Squiller called Apple’s tactics a “classic bait-and-switch strategy” and described the final agreement as “onerous and massively one-sided.” Making things worse for GTAT, if Apple decided not to use sapphire crystal in upcoming products — GTAT sapphire is not used in the iPhone 6 — GTAT would be required to fully repay the loan in cash.
Apple ultimately withheld a final prepayment to GTAT of $139 million.
The unsealed documents are unlikely to be used by either side for leverage. Last month, Apple and GTAT reached a new agreement that was described as “an amicable parting of the ways” by a GTAT attorney. In that agreement, GTAT will repay $439 million to Apple over four years interest-free.
GTAT and Apple agreed earlier this week that the newly unsealed information will not affect their new deal. In October, GTAT requested the documents that went public today remain sealed or it could face a $50 million penalty for violating disclosure agreements with Apple.
An unredacted version of a document called “Statement of Work #1 to the Master Development and Supply Agreement” remained under seal because it contained trade secrets, including how much sapphire Apple wanted to purchase and the amount it would pay.