Apple (AAPL) Will Likely Take Possession of GT Advanced's (GTAT) Sapphire Plant, Equipment and IP - Analyst

October 7, 2014 10:31 AM EDT
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In today's price target hike report on Apple (NASDAQ: AAPL) Susquehanna analyst Chris Caso also weighed in on the GT Advanced Technologies (NASDAQ: GTAT) bankruptcy.

Caso expects Apple to be a creditor in this bankruptcy filing since the company made prepayments to GTAT, to allow GTAT to purchase sapphire manufacturing equipment. "According to GTAT’s latest 10-Q filing, the facility in Arizona is owned by an AAPL affiliate, and was leased to GTAT for the purpose of sapphire manufacturing," he notes. "In addition, the prepayment made to GTAT was structured as secured debt, with the sapphire manufacturing equipment pledged as collateral. Finally, AAPL has already been granted a license for certain sapphire related IP by GTAT, and AAPL has the right to purchase a license for additional IP at AAPL's option."

He added, "Based on these details, following GTAT's bankruptcy, we would expect AAPL to simply take possession of the equipment that acted as security for the prepayments (particularly since AAPL owns the building), and for AAPL to exercise their option to purchase any sapphire IP that they haven’t already licensed. It’s unclear to us whether GTAT's bankruptcy resulted from sapphire production issues, AAPL's change in plans, GTAT cash flow issues, or some combination of these factors. We note that the high end versions of AAPL watch do use sapphire covers, so it's possible that this situation could impact production for these watch versions. In addition, while it would appear that AAPL structured the agreement with GTAT to protect its interests, it would seem likely that these events would at least complicate efforts to use sapphire covers on future versions of iPhone."

After crumbling 62.5% yesterday, shares of GTAT are up 62.5% to $1.29.



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