GT Advanced Technologies Stock Crashes 90% After Company Files for Bankruptcy
GT Advanced Technologies, the same company that for months was expected to be Apple's leading supplier of sapphire glass for the iPhone 6, has filed for Chapter 11 bankruptcy.
The apparent failure of the company was brought about by a number of factors, but it is suspected that the primary cause was the loss or absence of the highly-anticipated Apple sapphire display contract, which was supposed to bring GT Advanced Technologies an estimated $700 million in revenue by the end of 2014. In fact, according to Forbes, the company depended on Apple for more than 80% of its projected 2014 revenue.
Following the bankruptcy filing, the company's stock has plummeted by 90%, leading to speculation that the sapphire manufacturer will not be able to recover financially. We can't say that this happened out of nowhere though – in September the company's stock dropped by 35% after news surfaced that Apple would not be using sapphire in the upcoming iPhone 6.
How and Why Did Apple Stop Dealing with GT Advanced Technologies?
It's not yet clear what exactly caused Apple to abruptly end its dealings with the company. It is possible that GT Advanced Technologies failed to meet contractual obligations. Or it could be that Apple simply found a different supplier that was offering a better deal. After all, there are lots of sapphire manufacturer's out there to choose from. We do know that Apple chose to stick with Gorilla Glass instead of sapphire for the iPhone 6.
According to a report from Raymond James, GT Advanced Technologies already owed Apple $350 million for a loan it received to construct a sapphire manufacturing facility in Arizona. Unfortunately, the company's second-largest source of revenue – solar panel materials – generated only $31 million in the first half of this year.
Another report from Gilford Securities implies that Apple may have forced GT Advanced Technologies into early repayments on its loans. The report based this assumption on the fact that the company's cash reserves rapidly declined in the 3rd quarter of 2014, from $333 million to $85 million, which indicates that the company may have been actively paying off a significant amount of debt.
What About the Investors Who Bought Stock in the Company?
Perhaps the most disgruntled people in this equation are the investors who bought up GT Advanced Technologies stock under the assumption that the company was going to continue to have a lucrative relationship with Apple.
Back on November 4th, 2013 the company entered into an agreement to manufacture sapphire for Apple. From that time up until about two months ago the company's stock has been a hot topic, but many investors have criticized Apple for not being transparent enough in their intentions. While keeping device features secret before a launch is one thing, it's another to practically trick investors into thinking you're going to be buying material from a company and then at the last moment back out – but then we can't fault Apple for making what might've been the wiser business decision.
Some of the market has already delisted GT Advanced Technologies stock (GTAT). For example, Goldman Sachs has announced that it is not covering the company anymore, and the S&P Dow Jones has removed it from the S&P SmallCap 600 index. The aforementioned Raymond Jones report summarizes the likely fate of the company's stock by stating “we are comfortable predicting... that the equity is almost certainly worthless, and will likely end up being delisted.”
So now that GT Advanced Technologies is no longer Apple's sapphire supplier, the question is, which company will supply Apple with the sapphire it needs for the upcoming iWatch? We do know that Apple still plans to use sapphire in the iWatch, so it will be interesting to see which company the materials will come from.
