IBM sheds chip unit as financial woes hit hard

Big Blue will pay Globalfoundries $1.5bn to take it chip business

Tags: Mergers and acquisitions
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IBM sheds chip unit as financial woes hit hard IBM will continue its previously announced $3bn investment over five years for semiconductor technology research. (Getty Images)
By  Manda Banda Published  October 27, 2014

IBM has said it will pay Globalfoundries $1.5bn to take its money-losing chip unit off its hands as part of its push to shed unprofitable lines of business as it grapples with serious financial woes.

As part of the proposed deal, Globalfoundries has agreed to supply IBM processors, which include the company's Power chips, for the next 10 years. The deal follows months of speculation that IBM was shopping around its chip-making business, which reportedly loses as much as $1.5bn a year.

The deal was revealed just before IBM reported disappointing results for the third quarter, with sales falling 4% year over year to $22.4bn. IBM also backtracked on its five-year profit goal of hitting $20 a share by 2015.

"We are disappointed in our performance," IBM CEO Ginni Rometty said in a statement. "We saw a marked slowdown in September in client buying behaviour, and our results also point to the unprecedented pace of change in our industry."

The agreement, once closed will enable IBM to further focus on fundamental semiconductor research and the development of future cloud, mobile, big data analytics, and secure transaction-optimised systems.

IBM continues its previously announced $3bn investment over five years for semiconductor technology research to lead in the next generation of computing. Globalfoundries will have primary access to the research that results from this investment through joint collaboration at the Colleges of Nanoscale Science and Engineering (CNSE), SUNY Polytechnic Institute, in Albany, New York.

In addition, Globalfoundries will gain substantial intellectual property including thousands of patents, making it the holder of one of the largest semiconductor patent portfolios in the world. Globalfoundries also will benefit from an influx of one of the best technical teams in the semiconductor industry, which will solidify its path to advanced process geometries at 10nm and below. Additionally, the acquisition opens up business opportunities in industry-leading radio frequency (RF) and specialty technologies and ASIC design capabilities.

"This acquisition solidifies Globalfoundries' leadership position in semiconductor technology development and manufacturing," said Dr. Sanjay Jha, CEO, Globalfoundries. "We can now offer our customers a broader range of differentiated leading-edge 3D transistor and RF technologies, and we will also improve our design ecosystem to accelerate time-to-revenue for our customers."

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