IBM is selling its semiconductor business to GlobalFoundries in a bid to save money
IBM is selling its chip division, including a massive portfolio of semiconductor-related intellectual property, to GlobalFoundries – with IBM paying GlobalFoundries $1.3bn over three years to take over the division in a bid to save money. The move comes as IBM reported a dismal Q3, with net income for the quarter slipping 17 per cent to $3.5bn.
If the sale is approved by regulators it will see GlobalFoundries, which is owned by Advanced Technology Investment Company (ATIC) and was founded by AMD, acquire and operate existing IBM semiconductor manufacturing operations and facilities in New York and Vermont, and become the exclusive server processor semiconductor technology provider for 22nm, 14nm and 10nm semiconductors for the next 10 years.
The deal will also see GlobalFoundries acquire “substantial intellectual property” including a portfolio of “thousands of patents” relating to IBM’s silicon R&D, manufacturing processes, and Power architecture, as well as IBM’s commercial microelectronics business which includes ASIC and specialty foundry, manufacturing and related operations and sales.
IBM will pay GlobalFoundries $1.5bn over three years to take on the division, with GlobalFoundries paying IBM an estimated $200m for working capital.
IBM said the move will allow it to focus on semiconductor research for cloud and big data applications specifically, and help the company save money in the long run.
“The Agreement expands our longstanding collaboration, which began when GlobalFoundries was created in 2009, and reflects our confidence in GlobalFoundries’ capability,” said IBM senior vice president & director of research Dr. John E. Kelly III.
“This acquisition enables IBM to focus on fundamental semiconductor and material science research, development capabilities and expertise in high-value systems, with GlobalFoundries’ leadership in advanced technology manufacturing at scale and commitment to delivering future semiconductor technologies,” Kelly III said.
IBM’s offloading of its declining chip unit comes just months after US regulators cleared the company’s sale of its low-end X86 server business to Lenovo, a deal that saw IBM retain its higher end System Z and Power Systems businesses. The most recent move makes sense given how competitive the semiconductor market is, with Intel still grabbing the lion’s share of the server segment; IBM will however continue with its OpenPower Foundation work, which has seen some large tech and cloud incumbents join over the past year.
Nevertheless, the sale means IBM will take a $4.7bn cash charge on its Q3 balance sheet, which comes as the tech giant’s revenue continues to plunge. The company revealed its third quarter results this morning, reporting just $3.5bn in net income, down 17 per cent from $4.1bn in Q3 2013, and total revenues of $22.4bn, down 4 per cent from the third quarter last year. The slump is so bad that IBM decided to forgo an earnings forecast for 2015, planning instead to provide updated financial projections in January.
But revenue from cloud, business analytics, mobile services and security services grew 50 per cent, 8 per cent, over 100 per cent and 20 per cent, respectively.
The company said a mix of a slowdown in demand and the company’s shift to cloud and big data is to blame for its poor performance this quarter.
“We are disappointed in our performance. 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. While we did not produce the results we expected to achieve, we again performed well in our strategic growth areas – cloud, data and analytics, security, social and mobile – where we continue to shift our business. We will accelerate this transformation,” said Ginni Rometty, IBM chairman, president and chief executive officer.
“We are executing on a clear strategy that is moving IBM to higher value, and we’ve taken significant actions to exit nonstrategic elements of the business. This includes the announcement that we will divest semiconductor manufacturing to focus on research and development that will differentiate our systems,” Rometty said.
“We will continue to make the investments and the changes necessary to manage our business for the long term. And we remain fully committed to returning significant value to shareholders through dividends and share repurchase,” she added.