Inside Apple’s Broken Sapphire Factory – How $1 Billion Bet on Iphone Screens Failed; the ‘boule Graveyard’

MGMT 3800

Wall Street Journal Article Review

Inside Apple’s Broken Sapphire Factory – How $1 Billion Bet on Iphone Screens Failed; the ‘Boule Graveyard’

Nov 19th, 2014

Author: Daisuke Wakabayashi

Total Number of Words in Article: 1547 words

Specific Chapter Topics:

Chapter 6 Strengthening a Company’s Competitive Position

1. Outsourcing strategies
2. The drawbacks of Strategic alliances
3. How to make strategic alliances work

Key Points:

• GT Advanced Technologies Inc. unexpectedly filed for bankruptcy:  GT, who supplies Apple with super hard sapphire screens for its new iPhones, sought bankruptcy protection in October. Both investors and creditors felt shocked because it was just one year ago Apple and GT had launched a $1 billion plan to build an factory in Arizona which could produce sapphire with over 30 times quantities compare with any other plant in the world. Unfortunately, the cooperation between two companies led to a rare significant mistake in the history. GT considers it is Apple who utilized a “bait and switch” strategy to let the company stuck in this one-sided deal.
• The intention of cooperation: Apple initially went into GT to solve the problem that the screens of iPhones are vulnerable to get scratched or broken. Sapphire is the hardest material in the world so that the price of raw material that making sapphire is extremely high. GT made furnaces for producing sapphire. Apple initially intended to purchase 2600 new furnaces from GT, however, they changed their mind to require GT to produce Sapphire for Apple.
• Technical problem: Apple provides 5.78 billion for GT to generate new furnaces as well as spending additional 5 billion to purchase and reconstruct that Arizona factory. GT felt happy about that and signed contract with Apple, even though some experts expose that GT’s first 578-pound boule emerged from a furnace was cracked so badly that none of the sapphire was usable. GT considers the quality would enhance, and Apple was encouraged by GT’s prior record of making successively bigger furnaces.

Analysis:

            The possible bankruptcy of GT shows a doubled-edge sword as Apple’s supplier since you could either get an opportunity to earn bunch of money or stuck in huge risk. GT immediately hired over 700 workers without appropriate process so that some new employees even did not know whom they should report to. GT staffs also indicated that the lack of having attending policies has caused an unusual number of sick days. GT management authorized unlimited overtime this spring to put effort to fill in materials within the furnaces; however, the current furnaces that GT made are not enough to produce sapphire, which led to many staffs have nothing to deal with. Outsourcing involves a conscious decision to abandon attempts to perform certain value chain activities internally and instead to farm them out to outside specialists. GT, as the outside specialists to Apple, they apparently have chaotic management. Before Apple accepts the offer from GT, they should also consider whether sapphire could be produced better or more cheaply by GT. They should determine whether using sapphire as iPhone screens is crucial to the firm’s ability to achieve sustainable competitive advantage. In addition, whether GT has improved organizational flexibility and speeds time to market as well as whether GT has reduced Apple’s risk exposure to changing technology or buyer preferences. The answer is probably negative to most above questions. Then, we could say there is big risk exists of outsourcing producing sapphire with GT.  

...