The unanticipated bankruptcy of GT Advanced Technologies , whose stock price dropped by more than 90%, signals a sudden breakdown in the companys relationship with Apple AAPL 0%, to which the supplier was heavily indebted and depended on for more than 80% of its anticipated 2014 revenues, according to analyst reports released Monday.
A break off in business relations would be ruinous for GT Advanced Technologies, which manufactures the sapphire glass used in certain Apple products. The company owes $350 million to Apple for a loan it received to build a sapphire manufacturing facility in Arizona, according to a report from Raymond James. Its second largest source of revenue materials used in the production of solar panels only generated $31 million in the first half of 2014, a tiny fraction of the up to $700 million it had expected from Apple by year end, said Pavel Molchanov, an energy analyst at Raymond James.
This would be a major liability and GT is in no position to write a $350 million check, Molchanov said.
English: Apple's headquarters at Infinite Loop...
English: Apples headquarters at Infinite Loop in Cupertino, California, USA. (Photo credit: Wikipedia)
Apple may have even forced the company into early payments of its loans, according to a report by Gilford Securities. The report cited a rapid decline in the companys cash reserves during the Q3 2014, from $333 million to $85 million, as evidence of increased loan repayments.
Its unclear what caused the breakdown between the companies, analysts say. It could stem from a failure of GT Advanced Technologies to meet contractual obligations with Apple, or from a choice by Apple to switch to a different supplier, the Raymond James report said. There are many other manufacturers of sapphire, so Apple would have little difficulty finding another company to supply the material, Molchanov said.
This calls into question who will supply the sapphire for Apple Watches, which are due out in 2015, Molchanov said.
The company signed an agreement to manufacture sapphire for Apple on Nov. 4, 2013. Ever since then, investors have complained about a lack of transparency regarding Apples intentions, said Nimal Vallipuram, an analyst at Gilford Securities. The companys management forecasted $600 to $700 million in revenue during 2014, mostly during the second half, but would not offer specifics as to which Apple products the sapphire would be used for, Molchanov said.
The companys stock dropped 35% in September when Apple revealed it would not be using sapphire in the iPhone 6. Apple still plans to use sapphire in the Apple Watch, and investors assumed that GT Advanced Technologies would be the supplier, said Nimal Vallipuram, an analyst at Gilford Securities.
Some corners of the marketplace are already holding a quiet funeral for GT Advanced Technologies stock, GTAT. Goldman Sachs announced that it is no longer covering the company, and S&P Dow Jones Indices has removed GTAT from the S&P SmallCap 600 index, replacing it with Rex Energy REXX -1.32% (REXX).
What we are comfortable predicting is that the equity is almost certainly worthless, and will likely end up being delisted, said the Raymond James report.
