GT Advanced Technologies (GTAT, Financial) has announced early in the trading day that it has filed Chapter 11 bankruptcy, which shocked Wall Street and financial news shows, from CNBC to Fox Business. After the announcement, the shares fell 90% early in the trading day, from $11 a share to $1 a share. The company is a sapphire manufacturer who received a massive prepayment from Apple of $578 million. Apple's (AAPL, Financial) new iPhone 6 and iPhone 6 plus doesn't have sapphire glass green made by the company, and analysts for multiple Wall Street firms has been warning investors about the company as early as last month.
The company's stock fell below $1.00 early this morning, and is currently trading at $1.03.
Apple's Multi-Year Contract
Last November, GT won a $578 million multi-year contract with Apple to supply advanced sapphire material. Apple uses sapphire in its iPhone lineup to protect the rear-facing camera and the Touch ID sensing home button. Sapphire material will also be featured in some Apple Watch models due to go on the market some time next year.
Wall Street Was Shocked
No one on Wall Street foresaw the company filing for bankruptcy, with firms placing a neutral rating of $13 on the firm last week, and Jim Crammer called the company a home-run on his show on August 26.
"Talk about growth, they have the sapphire product that is going to go in the iPhone 6 launch… this is the stock I have been recommending.” - Jim Crammer
Since Apple isn't using the sapphire product in the iPhone 6 and iPhone 6 Plus, GT will have to start paying back the prepayment of more than $500 million over a five-year peroid.
In conclusion
Clearly, GT Advanced Techologies has felt the pain of technological advancement which over the last two decades has greatly increased. With the massive explosion in technological advancement, businesses in the technology sector have a hard time maintaining their position in the market. That is why Warren Buffett and Charlie Munger rarely invest in technology companies.
