Tags: IBM | Globalfoundries | Chip | Unit

IBM to Pay Globalfoundries $1.5 Billion to Take Chip Unit

Sunday, 19 Oct 2014 07:11 PM

International Business Machines Corp. agreed to pay Globalfoundries Inc. $1.5 billion to take an unprofitable chip-manufacturing unit off its hands, according to two people with knowledge of the matter.

IBM will also receive $200 million worth of assets, making the net value of the deal $1.3 billion, said the people who asked not to be identified because the plan is private. The companies plan to announce the deal Monday morning, the people said. IBM put out a statement Sunday saying it planned to make a “major business announcement” Monday at 7 a.m. New York time.

After months of on-again, off-again talks, IBM Chief Executive Officer Ginni Rometty struck a deal to jettison the chipmaking unit, which has been a drag on earnings. Globalfoundries, owned by an investment arm of the government of Abu Dhabi, is taking on the unit to tap the expertise of its engineers in the fundamentals of semiconductor design and manufacturing.

Globalfoundries spokesman Kevin Kimball declined to comment. James Sciales, a spokesman for IBM, didn’t immediately return a phone call or e-mail requesting comment.

In Sunday’s statement, IBM also said it planned to announce third-quarter results Monday morning, instead of after U.S. markets closed as planned. The company will host a conference call at 8 a.m. New York time.

IBM’s semiconductors, which include the PowerPC lineup, have been used in personal computers, game machines and other equipment. Still, Intel Corp.’s dominance in the processor market has left Armonk, New York-based IBM with less of a role in the chip industry.

Manufacturing microelectronics accounts for less than 2 percent of IBM’s revenue. Meanwhile, the division loses as much as $1.5 billion a year, a person familiar with the matter said in June.

The company is already part of an alliance with Globalfoundries, created in a spinoff of Advanced Micro Devices Inc.’s production facilities in 2009, to develop chip-production technology. IBM had been seeking a buyer for its chipmaking division since at least 2013, a person with knowledge of the unit said in February. Earlier this year, the company was focused on finding a joint-venture partner after failing to attract an acquirer, two people familiar with the matter said at the time.

Then, IBM was willing to pay $1 billion to persuade Globalfoundries to take the unit, a person familiar with the process said in August, underscoring the urgency for Rometty to get the division off the books. That was too low for Globalfoundries, which wanted about $2 billion to offset the unit’s losses, the person said.

Throughout the talks, Globalfoundries has been primarily interested in acquiring IBM’s engineers and intellectual property, rather than the manufacturing facilities, people with knowledge of the matter said in June. As the industry pushes the limits of material science in producing devices that have some dimensions as small as one atom thick, that knowhow is becoming more important.

Even as IBM wants to exit the chip manufacturing business, the company is still investing in semiconductors. IBM wants to maintain control of the design and intellectual property of the chips it uses, a person familiar with the matter said in February. The company plans to spend $3 billion on semiconductor research and development in the next five years.

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International Business Machines Corp. agreed to pay Globalfoundries Inc. $1.5 billion to take an unprofitable chip-manufacturing unit off its hands, two people with knowledge of the matter told Bloomberg Sunday.
IBM, Globalfoundries, Chip, Unit
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2014-11-19
Sunday, 19 Oct 2014 07:11 PM
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