Before the release of the latest Apple (AAPL) iPhones, there was a rumor that they would have displays made of sapphire glass supplied by GT Advanced Technologies (GTAT). The mere thought of such an upgrade was as lavish as could be -- sapphire glass is the ultimate in glass casing. Some of the best watches in the world, like Tag Heuer, use sapphire glass because it doesn't scratch or break. The idea that a smartphone would use it was an amazing prospect -- but a ridiculous one as the cost of the phone would skyrocket.
Apple already uses sapphire for its iPhone camera lenses and fingerprint scanners, so this was not a rumor without some basis in reality. But the new iPhones were rolled out with no sapphire glass and then last Friday GT filed for bankruptcy protection. The stock fell from $11 with a market cap of $1.5 billion on Friday to $0.80 per share with a market cap of $110 million by Monday's close.
Did confirmation that sapphire-clad iPhones were just a fantasy lead to the swift unraveling of GT Advanced Technologies -- or was it something else?
Earlier this year, GT received $578 million in cash from Apple as advance payment for sapphire material. Somehow, that payment created an assumption by GT (and perhaps by analysts, too) that GT's sapphire-related revenue would reach $1 billion. This led to a further belief among investors that sapphire glass would protect every new iPhone and maybe the Apple Watch, too. I think we can see how such a belief could cause the value of a company to skyrocket as GT's did.
Fast forward to today; there are no sapphire-clad iPhones and GT is on the hook to Apple for a good portion of the $578 million. Apparently, GT doesn't have the money, so a bankruptcy filing was the best option, according to management.
The shares rebounded today, opening trading up 12.5% to $0.90, and 56% higher to $1.25 in morning trading. But it looks like Apple controls the fate of this company, at least in the short run. We know that $578 million is a drop in the bucket for Apple, and if GTAT provides a useful service, why wouldn't Apple want to keep it around?
This is going to be an interesting stock to follow; GT Advanced Technologies may never again be a sound investment opportunity -- or it could be a multi-bagger hiding in plain sight. That's why this name is worth exploring.