IBM May Be Close to Offloading Computer Chip Unit

The computer giant will probably pay more than it originally hoped to get GlobalFoundries to take over its chip manufacturing operations.
Matthew HellerOctober 8, 2014
IBM May Be Close to Offloading Computer Chip Unit

IBM may be close to announcing an agreement under which it would pay GlobalFoundries to take over its costly computer chip manufacturing operations.

ibm chipNegotiations over a deal reportedly broke down in July after GlobalFoundries rejected IBM’s original $1 billion offer. Since then, the on-again, off-again talks have resumed, with IBM now offering to pay GlobalFoundries more to take the chip unit, Bloomberg reports, citing a person familiar with the matter.

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Tech blogger Dan Nenni reported last month that the parties had reached a handshake deal worth more than $2 billion.

GlobalFoundries, which is owned by an investment arm of the government of Abu Dhabi, had placed little or no value on IBM’s chip factories because they are too old, Bloomberg notes, adding that when talks broke down, “GlobalFoundries wanted to be paid about $2 billion to take the operations, enough to offset the division’s losses.”

IBM’s microelectronics manufacturing revenue slid 17% in the first half of 2014, according to a company filing, and the unit accounted for less than 2% of IBM’s $100 billion in revenue last year. Getting the unprofitable business off the books will help CEO Ginni Rometty reach her earnings targets, even as revenue has decreased for nine straight quarters, Bloomberg said.

The potential deal is part of the computer chip industry’s move toward a “fabless” model under which chip companies outsource their manufacturing to so-called “foundry” companies, the Albany Times Union newspaper reported last month. As part of the trend, companies like Intel and Samsung Electronics, which still make their own chips, are now offering foundry services.

“Combining the technical expertise of IBM with the marketing prowess of GlobalFoundries” would be a “game changer for the fabless semiconductor ecosystem,” Nenni predicted.

IBM has chip factories in East Fishkill, N.Y., and outside Burlington, Vt., and a packaging facility near Montreal. It has told investors that it will not exit the semiconductor business entirely, pledging to spend $3 billion over the next five years on developing computer chip innovations.

Photo: Dirk Oppelt, via Wikimedia Commons, CC BY-SA 3.0

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