IBM to ditch costly chip-making unit

IBM has reportedly reached an agreement with Globalfoundries to take over its semiconductor operations

IBM has reportedly reached an agreement with Globalfoundries to take over its semiconductor operations.

IBM will pay the manufacturer $1.5bn to take the chip operations off its hands, the Wall Street Journal reported.

The move effectively acknowledges the rising cost of chip making is too burdensome for IBM, the paper said.

IBM’s chip-making unit reportedly loses as much as $1.5bn a year, and its revenue – which accounted for just 2% of IBM’s revenue in 2013 – fell by 17% in the first half of 2014, according to a company filing.  

News of the $1.5bn deal comes just over two months after Bloomberg reported a deal had fallen through as IBM was offering $1bn, while Globalfoundries was seeking $2bn.

When news of a possible deal arose, Globalfoundries was said to be mainly interested in acquiring IBM’s engineers and intellectual property rather than manufacturing facilities.

Analysts said ditching less profitable parts of the business, such as the company’s chip-making operations, will help IBM chief Ginni Rometty in achieving the goal of increasing margins as revenue growth slows.

The technology firm said it would make a "major business announcement" on 20 October 2014, when the company is also scheduled to report its third-quarter earnings.

IBM has reportedly been in talks for a while with the Santa Clara, California-based Globalfoundries, which has manufacturing operations in the US, Germany, Malta and Singapore.

These sites are supported by a global network of research and development, design enablement, and customer support operations in Singapore, China, Taiwan, Japan, the US, Germany, and the Netherlands.

Globalfoundries claims to be the world's first full-service semiconductor foundry with a truly global manufacturing and technology footprint.

The company’s mission statement is to “reshape the semiconductor industry through collaboration and innovation”.

Globalfoundaries launched in March 2009 through a partnership between Advanced Micro Devices (AMD) and the Advanced Technology Investment Company.

With the integration of Chartered Semiconductor in January 2010, the company claims to have significantly expanded its capacity and ability to provide best-in-class foundry services.

Once the latest deal is completed, Globalfoundaries is expected to act as the main supplier for IBM’s microprocessors.

Analysts said to remain competitive, IBM would have had to spend billions of dollars to keep its semiconductor plants up to date with newer chip technology.

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