The bankruptcy of GTAT has once again exposed many of GTAT’s equipment contract scandals in China. Several sapphire industry insiders told reporters that many of GTAT's previous orders in China had serious problems. None of the technical indicators it promised could meet the contract standards. For this reason, a large number of Chinese companies suffered economic losses of more than billions.
However, all Chinese companies have remained silent on this choice.
GTAT files for bankruptcy protection
The surge in GTAT’s stock price began with its signing with Apple. In 2013, Apple said it would invest US$700 million to build the world's largest artificial sapphire factory, with GTAT as its partner. The contract started in 2015 and lasted for five years. The content of the contract shows that GTAT cannot supply the screens supplied to Apple to other companies; if GTAT fails to meet Apple's quality and production capacity requirements, it will not receive full payment. Moreover, the contract also mentioned that Apple is not obliged to purchase screens from GTAT.
Public information shows that GTAT’s main business is the provision of advanced materials and crystal growth equipment, including polysilicon, photovoltaics, power electronics, solar module metallization, sapphire production solutions and thermal treatment systems.
However, when Apple released its iPhone 6 in September this year, it was not equipped with a sapphire screen, but still used a glass screen. Apple has only announced that two of its three upcoming smartwatches will have sapphire screens. According to people familiar with the matter, Apple decided not to use sapphire screens as mobile phone screens because previous tests showed that artificial sapphire is fragile and the screen will break when the phone is dropped from different heights and angles.
It is precisely for this reason that Apple failed to pay $139 million to GTAT, which dealt a fatal blow to GTAT, which was already in financial trouble. This $139 million payment was supposed to be the last of four payments totaling $578 million made by Apple to GTAT. GTAT said in August that it expected to receive the final payment at the end of October, provided that its Mesa, Arizona, plant met certain operating targets.
GTAT documents show that as of September 29, the company had approximately US$85 million in cash and was seeking bankruptcy protection financing. The company expects the court will approve its business as usual during the restructuring process.
In the application submitted to the U.S. Bankruptcy Court in New Hampshire, GTAT and its subsidiaries reported assets of US$1.5 billion and total liabilities of approximately US$1.3 billion. Its documents show that Apple is one of GTAT's hundreds of creditors.
Chinese companies were deceived
In fact, many industry insiders engaged in the domestic sapphire industry told reporters that GTAT played the role of a "scammer" selling equipment in China. It sold a large number of sapphire production equipment at high prices in China, but almost all of these equipment failed to achieve the results they promised.
"Most of the emerging enterprises in mainland China that currently enter the sapphire crystal growth industry have an impetuous mentality of making quick money in the short term. Since these enterprises do not have their own talents, technology and equipment, they hope to introduce foreign automation equipment for rapid production, which has led to the success of GTAT." An industry insider told reporters.
He listed to reporters a list of companies that had purchased GTAT sapphire equipment, including Jiangsu Jixing, Guangdong Saifei, Haining Shangcheng Technology, Guizhou Haotian and Jiangsu Linyang.
At the end of April 2011, Guiyang Industrial Investment (Group) Co., Ltd. (hereinafter referred to as "Guiyang Industrial Investment") and GTAT signed a strategic cooperation agreement on sapphire production in Guiyang. According to the agreement, Guizhou Haotian Optoelectronics Technology Co., Ltd., a wholly-owned subsidiary of Guiyang Industrial Investment Investment, invested US$218.8 million to purchase 360 GT sapphire production equipment, and will use two years to form a first-phase project with an annual output of 30 million pieces of sapphire substrate materials. By then, annual sales will reach approximately 4 billion yuan.
According to the data, Guizhou Haotian's cooperation with GTAT in the United States is not just a general equipment purchase, but the introduction, digestion and absorption. In addition to providing equipment, GTAT also provides technical and market support.
However, the above-mentioned insiders in the industry told reporters that Guizhou Haotian first developed a sapphire material project with domestic companies, with an initial investment of approximately 300 to 400 million, and the content was to provide 2, 4, and 6-inch sapphire solutions. Subsequently, GTAT intervened in the project, and Guizhou Haotian increased its investment amount from more than 300 million to more than 2 billion, and purchased an astonishing number of 360 units, equivalent to buying GTAT's entire year's production capacity. The original intention of Guizhou Haotian "is to prevent other competing manufacturers from intervening in the industry."
Subsequently, Guizhou Haotian paid 20% of the total order price (equivalent to more than 600 million yuan) to GTAT, but only received more than 20 pieces of equipment from the other party.
"Currently, GTAT has delivered a total of about 150 pieces of equipment to Guizhou Haotian, with annual sales of 30 million to 40 million yuan, which is far from the original goal." The above-mentioned industry insider told reporters. He also said that the current production cost of Guizhou Haotian, taking a 2-inch product as an example, is about US$8-9/piece, but the current selling price is only US$3/piece, and sales cannot even cover depreciation.
"The reason is that the data provided by GTAT when selling stoves are all laboratory data. It has no experience in large-scale mass production. Many Chinese companies are superstitious about large American manufacturers, so they were deceived." The above-mentioned person added to reporters.
Behind the Silence
This situation is not unique to Guizhou Haotian's family, but is very common. After cooperating with Guizhou Haotian, GTAT announced its expansion in the field of sapphire equipment and sold 800 units of equipment to Guangdong Saifei. Haining Shangcheng Technology Co., Ltd. also invested 500 million yuan in Zhejiang Haining Economic Development Zone to introduce GTAT's new generation sapphire growth system and build a sapphire substrate production line with an annual output of 6 million pieces. Even after the completion of these projects, they failed to meet the cost and output requirements promised by GTAT.
Another industry insider told reporters that in fact, many domestic projects investing in the LED sapphire substrate industry are very exaggerated and far from reaching their original planned volume. The equipment operating rate of most projects is less than 1/3. Moreover, many LED sapphire companies are currently conducting exploratory experiments. Although they claim that a single contract is for more than 100 units, the number of units introduced in the first phase is generally between 5-30 units.
GTAT not only sells equipment to enterprises in mainland China, but also to customers in Taiwan across the Taiwan Strait. Taiwanese company Xinjingzuan is also one of GTAT's customers. When it found that GTAT's equipment failed to meet the contract requirements, it took GTAT to court. In the end, GTAT lost the lawsuit and needed to return Xinjingzuan's US$24 million in equipment.
But unlike Taiwanese companies, most mainland companies chose to remain silent after discovering problems.
The above-mentioned industry insiders revealed to reporters that the reason why no mainland company chose to take GTAT to court is that "a very important reason may be that many project investments use government funds. Once the specific details are disclosed, the government's investment may be in vain, so many companies choose to remain silent."
In addition, when GTAT signs contracts with Chinese manufacturers, it does so through a company established in Hong Kong, not GTAT's parent company. This means that if a Chinese company sues the Hong Kong company, it can choose to go bankrupt, but it will have no impact on its parent company.
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