GTAT announced on October 6 that it had filed for bankruptcy protection. This news can be said to have shocked the entire industry. This may be the first manufacturer in the industry to be signed by Apple to exclusively supply components, but then went bankrupt. In addition to the stock price falling below 90%, it also began to cause people to discuss issues about the Apple industry supply chain, especially the harsh situation of Apple suppliers.
According to Bloomberg reports, Apple and GTAT actually signed an unequal contract: the contract states that Apple can monopolize GTAT's production capacity in the next five years, but if GTAT's products do not meet Apple's expectations, Apple can not purchase GTAT's goods. In this regard, Apple provided GTAT of US$578 million (equivalent to approximately RMB 3.547 billion) as an interest-free loan. This part of the loan will be amortized over five years starting in 2015.
The heavy pressure to become an Apple supplier
In fact, working with Apple requires considerable awareness. Compared with the Apple supply chain we are familiar with, in fact, Apple often adopts a second-hand strategy, cooperating with different manufacturers or ordering goods to lower prices. Therefore, as long as you do Apple's OEM, the gross profit is usually very low, but you can earn a technical reputation, because being able to handle Apple is a kind of affirmation, so you can receive more orders, and you can obtain subsequent revenue from other brands.
However, GTAT has signed an "Apple exclusive" contract, which means that the company can only make money from Apple during the contract period. If the gross profit of the company's products from Apple is not high, signing such a contract is tantamount to suicide. Moreover, at the end of last year, the company still had debts of about 854 million US dollars (equivalent to about 5.24 billion yuan), so it would sign such an "exclusive production capacity" contract. If GTAT The assessment believes that they can earn a certain amount of profit by simply manufacturing for Apple, otherwise they think they will have a killer product--a sapphire screen.
Is the sapphire screen to blame?
Of course, many people will sneer at sapphire screens now, but in early 2014, Appleinsider had disclosed that Apple had applied for sapphire panel technology. Even if the iPhone 6 does not use sapphire panels, it means that Apple has indeed considered the possibility of using sapphire to make panels. The source of this sapphire panel is most likely GTAT, which borrowed money from Apple to expand production capacity.
But in fact, there is a huge problem with the production yield of sapphire panels - according to research institutions, it may be only about 40%. Although sapphire has good hardness, it is also true that it is easily broken. This characteristic also makes it difficult to cut the panel. In addition to the hardness, the light transmittance is actually not as good as Gorilla glass. Even if Apple wants to make the iPhone's panel more scratch-resistant, it can only continue to use traditional panels if the technology cannot be effectively improved.
Apple Watch can’t save GTAT
If sapphire panels are ultimately an impossible task, then there is another possibility, which is to look to Apple’s killer product, the Apple Watch. However, according to Rosenblatt’s prediction, the annual output of 20 million to 25 million units cannot be regarded as a truly stable source of income – and this is likely to be an optimistic estimate – unless there are many more people who want to change watches every two years than we think. There are even investment institutions that have sales in the first year. Conservative forecast of 10 million units.
If Apple’s loan and contract are mainly based on sapphire panels, it means that both Apple and GTAT have inaccurate technical evaluations; if GTAT is banking on the annual sales of Apple Watch, it may be too optimistic about itself. In any case, no matter how harsh Apple’s contract is, GTAT should not sign this “exclusive contract” foolishly.
Exclusive supply is a blessing or a disaster
No matter how big the factory is, no supplier has yet been able to earn a high gross profit from Apple. An exclusive contract with Apple will definitely not be a cost-effective thing. GTAT may have been driven to the wall by debt, so it tried every means to sign this deal, but it eventually led to its bankruptcy.
Of course, if there are any fraud cases that have not yet been exposed, for example, Apple should have theoretically evaluated the feasibility of using sapphire in the screen. Assuming that Apple knew that the chance of success was unlikely, but still signed the loan contract, is there any problem in the process? It may make this matter more exciting.
The only thing that can be known at present is that Corning, as the supplier of Apple iPhone/iPad panel glass, should feel relieved now!
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