GT Advanced Technologies (GTAT) has had the sort of week that immediately makes one think of Ron Burgundy.
Nasdaq Filing to Halt Trading Sends GTAT Shares Plummeting Again
There are times when people can overreact to the term “bankruptcy.” In the case of Chapter 11 bankruptcies, for instance, the process is a restructuring that, while expensive, can often leave a company more competitive in the long run. A number of now-thriving businesses went through Chapter 11 and came out the other side ready to roll.
So when GTAT initially started cratering on October 6, it seemed possible that there was an overreaction. Sure, it was possible that shareholders would take a hit during the bankruptcy process, but a 90% loss of value for its stock? That seems excessive.
And, apparently, a lot of other people thought so as well as the company bounced back over 50% on October 7 after people had had a chance to digest the news. Granted, 50% of 10% of the company’s value as of the morning prior isn’t exactly going to touch off any wild, impromptu parties at GTAT board meetings, but it was a sign that some felt the stock still had some value.
Unfortunately for GTAT shareholders, that has the appearance of a dead cat bounce at this point. Monday has brought another steep sell-off, sending shares down over 50% to, well, way below where the stock had landed after the initial bankruptcy news broke. October 6 saw shares drop below a dollar and land at around $0.80 apiece. Now? They’re trading at under $0.40.
In this case, two factors appear to be driving the sell-off. One was the details from its 8-k filing made on Friday, but likely the bigger culprit would be the news that the Nasdaq was planning to halt trading of the stock on Wednesday as part of the process of delisting the stock, leaving anyone holding shares with a mere two days to figure out what to do with them.
Unsurprisingly, with so much up in the air, a lot of people are deciding that it’s not worth sticking around to see where it all lands. They’re getting out while they still can.
Sometimes a Bankruptcy is a Good Thing for a Company. This is Not One of Those Times.
So, while some companies may drop sharply initially after a bankruptcy announcement only to recover some when details about the filing emerge, GTAT appears to be in precisely the opposite position.
The company’s 8-k filing with the SEC was finally made official on Friday and included some sobering details. It also involved GTAT throwing Apple (AAPL) under the bus for what it termed an “oppressive” and “burdensome” contract regarding its sapphire manufacturing plant.
If you’re following GTAT over time, the company had a thriving solar equipment manufacturing business up until that market collapsed in 2012 after the expiration of some key subsidies. The shift over to manufacturing sapphire surfaces for iPhone screens, and the $578 million deal closed with Apple, seemed like a real lifeline for a company that was otherwise in trouble.
Now, just under one year later, it appears as though the plan was to convert a manufacturing plant abandoned by First Solar (FSLR) in 2012. GTAT revealed that keeping the plant open was costing the company a cash burn of $1 million a day, meaning the $85 million in cash the company had put in within three months of running out of money. All for a plant committed to manufacturing sapphire screens that Apple’s not going to be using in its iPhone 6.
Is Apple a Good Business Partner?
On the whole, this entire episode has some wondering if Apple might have precipitated GTAT’s collapse. Granted, GTAT’s rise in the last year was largely fueled by Apple, but there remains some real questions about what really happened to GTAT.
Firstly, there’s Apple deciding not to use GTAT’s sapphire technology with its new iPhone 6. Given that it was a single year after the two companies convened their deal and started working towards building their massive plant, it’s hard to understand exactly how Apple could go from investing in GTAT’s future to simply dropping them. That said, Apple, while lending a lot of money to GTAT, didn’t include any guaranteed purchases and allowed Apple to pull back its loans whenever it felt like it.
And pull back its loans Apple did. It appears, at this point, that GTAT failed to get manufacturing up to speed in time, prompting Apple to call for repayment of the $439 million in loans it had already made along with withholding a $139 million payment expected by GTAT (guessing this had a lot to do with the timing of this bankruptcy). Much of that deal was structured as a prepayment on sapphire products, so, given that GTAT isn’t going to provide said products, it’s going to have to figure something else out.
We’re all guessing, though, because GTAT also revealed a $50 million penalty that would have to be paid should it violate the confidentiality agreement the company signed with Apple. So, for now, we’re all trying to suss out what happened by reading between the lines on the 10-Q and 8-K filings.
Apple Will Be Fine, GTAT Will Most Likely Not
On the whole, GTAT was a company in serious trouble prior to Apple riding to its rescue, so it hardly seems fair to blame Apple for its collapse. Depending on what comes out moving forward, it seems entirely possible that Apple decided to give a small company a big chance and understandably insulated itself in the process. GTAT appears to have rolled the dice on making a big expansion and came up short.
However, Apple may be creating its own PR issue in the process. The company’s secretive deal followed by shifting away from sapphire for the iPhone 6 then, hypothetically, calling in its loans all seem to paint Apple in a potentially unflattering light.
That said, it’s not like this appears to do any serious damage to Apple. Sure, the company has cultivated its squeaky clean image carefully, but it’s not as though GTAT’s bankruptcy is the sort of story that’s going to crack the public consciousness in a way that will actually affect iPhone 6 sales.
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