Why doesn’t the iPhone 6 have a sapphire screen?

An article recently published by foreign media disclosed the inside information of the bankruptcy of Apple's sapphire supplier GT, as well as the whole story of Apple's cooperation with GT, revealing the prospects and risks of being an Apple supplier.

Shortly before 7 a.m. Pacific Time on October 6, GT Advanced Technologies (GT) called an Apple vice president and broke the bad news: GT, the company that was scheduled to supply sapphire screens for Apple's new iPhone, had filed for bankruptcy 20 minutes earlier.

According to a letter Apple later sent to GT's creditors, the incident came as a surprise to Apple because the two companies were negotiating to revise their contracts to relieve GT's financial pressure. Executives from both companies were scheduled to meet at Apple's headquarters the next day.

A year ago, Apple and GT celebrated their agreement to build a sapphire factory in Arizona, USA, with a production capacity 30 times that of any other sapphire factory. However, this cooperation turned out to be a rare misstep for Apple. As the world's most valuable company, Apple has implemented strict management of its global suppliers. Since the launch of the first iPhone in 2007, Apple has been pushing suppliers to complete almost impossible tasks, while repeatedly squeezing suppliers' space in terms of price and time to market.

Apple's alliance with GT was troubled from the start. Before the deal with Apple, GT had never produced sapphire on a large scale. The New Hampshire-based company produced its first batch of 578-pound sapphire ingots just days before the deal with Apple, and they were defective and unusable. GT hired hundreds of workers without proper supervision, with some employees repeatedly sweeping the floor and getting overtime pay, and others simply skipping work.

GT's fate reflects the prospects and risks of being an Apple supplier. An Apple order can potentially bring in billions of dollars in revenue, but it also means bearing huge fluctuations in buyer demand, extremely low profit margins, and almost zero room for error. An executive at an Asian company that has long been an Apple supplier said: "This money is not easy to make."

GT Chief Operating Officer Daniel Squiller told the bankruptcy court that Apple turned GT into a supplier with no autonomy, "bearing all risks and costs", and that GT could hardly make a profit according to Apple's "tough prices". Apple blamed the failure of the deal entirely on GT's mismanagement. In a letter to GT's creditors, Apple said: "Our commitment to the success of the project has never wavered."

Apple approached GT to solve a big problem with the iPhone: scratched or cracked screens. Sapphire is one of the hardest materials in the world and is usually synthesized in high-temperature furnaces at nearly 2,000 degrees Celsius. It is expensive, equivalent to more than five times the cost of glass. In order to produce iPhone camera lenses and fingerprint readers, Apple consumes a quarter of the world's sapphire supply. At the beginning of last year, Apple began looking for a larger supply of sapphire for iPhone screens.

GT makes furnaces for sapphire. According to Apple, GT told Apple in March last year that it was developing a furnace capable of producing 578-pound sapphire ingots, which is more than double the weight of existing sapphire ingots. Larger ingots will help produce more displays, thereby reducing costs.

GT disclosed in its bankruptcy filing that Apple had expressed interest in purchasing 2,600 furnaces. Last summer, Apple changed its mind and asked GT to produce sapphire directly. According to sources, Apple was unwilling to pay for 40% of the profit of the furnace equipment.

At the same time, Apple has also encountered difficulties in finding sapphire manufacturers. An executive of another company that Apple contacted last year said that if they produced sapphire at the price Apple asked, they would hardly make a profit.

Apple proposed to loan GT $578 million to build 2,036 furnaces while operating a factory in Arizona that Apple would buy and renovate for $500 million and then lease to GT for $100 a year.

GT was attracted by the offer because the contract would provide more stable revenue than equipment orders. In addition, GT's solar cell business was in trouble, with the company's revenue in 2013 falling 66% from two years earlier.

GT signed the deal with Apple on October 31, just days after the company produced its first batch of 578-pound sapphire ingots, which sources said were of poor quality and none of which could be used. But Apple was reassured by GT's promises to improve quality and its reputation for producing large furnaces.

GT quickly hired 700 workers. But former GT managers and employees revealed that the company hired too quickly, and more than 100 new employees this spring didn’t know who they should report to, and there was no attendance system, which led to an inflated number of sick days. In addition, GT did not install enough furnaces, resulting in many employees having nothing to do. A former employee said: "We just swept the floor over and over again."

The biggest challenge is producing sapphire. It takes about 30 days to produce a sapphire ingot and costs about $20,000. Sources familiar with Apple said that more than half of the sapphire ingots are unusable. Sources familiar with GT's business said that GT placed a large number of useless ingots in an area of ​​the Arizona factory, and employees jokingly called the area the "ingot graveyard."

GT Chief Operating Officer Squeally told the bankruptcy court that GT lost three months of production time due to power outages and delays in building the factory. Apple was responsible for building the factory and providing electricity according to GT's requirements. But Apple's letter to GT's creditors said that the reason for GT's failure was poor management, not power outages. GT countered in a statement that Apple was misleading the outside world.

In April this year, Apple stopped the last $139 million loan originally planned to support GT, accusing GT of not meeting the production and quality requirements stipulated in the agreement. In its bankruptcy statement, GT said that Apple had changed the specifications of sapphire many times, and it cost GT $900 million to get the factory running. The $439 million loan provided by Apple was far from enough.

On June 6, GT CEO Thomas Gutierrez met with two Apple vice presidents at Apple headquarters to explain the production problems. He submitted a document titled "What Really Happened?" that listed 17 problems, including improper installation of too many furnaces and careless changes to furnace designs.

After the meeting, GT decided to stop producing 578-pound sapphire ingots and switch to 363-pound ingots in the hope of getting its business back on track. After the ingots were produced, GT used a diamond saw to cut the 14-inch-thick sapphire blocks into the shapes of Apple's iPhone 6 and iPhone 6 Plus to test whether the sapphire could be used as the screens for the two new phones.

Production wasn’t the only problem. In August, a former employee said, GT discovered that 500 sapphires were missing. A few hours later, employees learned that a manager had sent the sapphires back to the furnace instead of shipping them out. If not discovered in time, the return would have cost GT millions of dollars.

By this time, it was clear that sapphire was no longer possible for use in the new iPhone displays, which were set to go on sale on September 19. However, sources said Apple still wanted to get as much sapphire as possible. According to the letter Apple sent to GT's creditors, Apple only received 10% of the sapphire that GT had originally promised.

In the first week of September, GT told Apple that it was experiencing serious cash problems and asked Apple to pay back a $139 million loan and to increase the price of sapphires starting in 2015. On October 1, Apple paid GT $100 million of the $139 million, but delayed the full payment. Apple also expressed its willingness to increase the purchase price of sapphires this year and discuss raising the purchase price next year. At the same time, Apple agreed to relax the exclusivity clause in the agreement so that GT could sell furnaces to other customers. The two parties agreed to have further communication at Apple headquarters on October 7.

However, on the morning of October 6, GT CEO Gutierrez called Apple to inform it that GT would seek bankruptcy protection. Sources familiar with GT's business said that GT executives had never disclosed the bankruptcy plan to Apple because they were worried that Apple would block it.

Influenced by this news, GT’s stock price plummeted 93% on the same day, and its market value evaporated by about US$1.4 billion.

As a winner of Toutiao's Qingyun Plan and Baijiahao's Bai+ Plan, the 2019 Baidu Digital Author of the Year, the Baijiahao's Most Popular Author in the Technology Field, the 2019 Sogou Technology and Culture Author, and the 2021 Baijiahao Quarterly Influential Creator, he has won many awards, including the 2013 Sohu Best Industry Media Person, the 2015 China New Media Entrepreneurship Competition Beijing Third Place, the 2015 Guangmang Experience Award, the 2015 China New Media Entrepreneurship Competition Finals Third Place, and the 2018 Baidu Dynamic Annual Powerful Celebrity.