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Tuesday, October 28, 2014 by Mark Richardson

Bankruptcy scuttles Apple’s Arizona operations

PHOENIX — A multimillion-dollar deal put together last year for Apple to manufacture sapphire glass components in a suburban Phoenix factory has unraveled after Apple’s partner in the venture unexpectedly filed bankruptcy Oct. 6, according to court papers.

Austin and Phoenix were in direct competition in September 2013 for the operation, which was projected to employ 2,000 people making sapphire screens for products such as the iPhone and the Apple Watch. Arizona economic development officials, led by Gov. Jan Brewer, hailed the deal as a sign that the state was finally recovering from the crippling blows it took during the Great Recession.

Officials in the City of Mesa, where the facility is located, spent millions of tax dollars to refurbish the plant — a former solar panel manufacturing facility — and its surrounding infrastructure in order to lure Apple to the area. A special 5 percent property tax rate was approved by local officials for the site, and the Arizona Legislature passed new tax breaks for the manufacturing facility.

State officials say about 725 employees will lose their jobs before the end of the year. Meanwhile, numerous staffing companies and contractors are anxiously awaiting word on whether they will be paid.

Under the 2013 agreement, Apple’s partner, New Hampshire-based GT Advanced Technologies, was to operate the facility and had taken about $540 million in advances from Apple to tool up and begin operations. The company filed for bankruptcy after Apple withheld an additional $139 million in loans because GT Advanced had failed to meet production goals, according to the website Macrumors.

Though GT Advanced filed for Chapter 11 reorganization, it has reached an agreement with Apple that will completely shutter its operations by Dec. 15. There are no plans to resume production. GT Advanced is reportedly looking for buyers for the specialized manufacturing furnaces it used in the plant so it can repay Apple.

Several companies, including Apple, have pitted Austin against Phoenix for incentive packages to locate their businesses in one city or the other. In 2012, Austin won over Phoenix for the location of a $304 million Apple back office expansion. Though Apple passed over Austin in 2013 for the sapphire manufacturing plant, it brought a different manufacturing operation to Austin that same year.

In 2013, Apple partnered with Flextronics to begin manufacturing the obelisk-looking Mac Pro computer in a North Austin factory. Macrumors said that although the plant began as a low-volume operation, Apple plans to ramp up production and hire up to 3,600 employees by 2021.

After taking criticism that most of its manufacturing was overseas, Apple shifted production of some of its sapphire glass from China to Arizona when it announced the Mesa deal last year. Industry analysts say the bankruptcy and shutdown will not affect production of the new iPhones introduced earlier this month, but the company could be looking for another source for sapphire glass for its planned Apple Watch.

Apple is being tight-lipped about future sources of sapphire glass, not saying whether it will try to locate another partner for the Arizona operations, look for another domestic location or send production back overseas.

Calls from the Monitor to Brewer, GT Advanced and Apple’s corporate headquarters for comment were not returned.

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