Update: IBM advised late Sunday that it will be making “a major business announcement” Monday morning along with its’ third-quarter results according to Bloomberg News.
This comes as no surprise to industry watchers. Sanjay Jah, CEO of Globalfoundries Inc. is well known as a shrewd negotiator – fees for taking over IBM’s semi ops were reported as high as $2 Billion.
IBM is shedding the company’s brick and mortar structure piece by piece to facilitate what the company sees as its new destiny. Commoditisation of semiconductor and hardware server content is seen as the motivation.
Margins in both businesses have decreased to the point where economies of scale must come into play – requiring ever-larger investments with ever decreasing margins draining capital away from the company’s core business strategy.
IBM announced that it is investing $3 Billion over five years on semiconductor research in a move to reassure its customer base that the company is continuing basic research to advance hardware and software technology indicating that the company will still be supporting high end research.
What’s not clear at this time:
- Number of people affected
- Timeframe
- Whether all semiconductor operations are included
- Power PC
- Intellectual Property
- Operating charges
We’ll be following up on details as they become available.
Update:
In a statement made this morning IBM will pay Globalfoundries Inc. $1.5 billion over the next three years to take over the company’s loss ridden semiconductor operation.
Globalfoundries will become IBM’s exclusive server processor foundry for 22nm, 14nm and 10 nm server and Power processors for the next decade.
IBM will take a third-quarter pretax charge of $4.7 billion.
Job Retention
Globalfoundries will offer jobs to those affected in East Fishkill, New York and Essex Junction, Vermont. Workers at IBM’s commercial microelectronics business are also included in the offer.
Globalfoundries will gain access to IBM intellectual property and technologies related to IBM Microelectronics under the 10 year partnership agreement – making the foundry one of the largest semiconductor IP portfolios holders in the world.
Trusted Foundry
The U.S. Government has used IBM as a supplier as a “trusted foundry” supplier for decades. Globalfoundries is privately owned by United Arab Emirates company called Advanced Technology Investment Company, or ATIC, a subsidiary of the Emirate of Abu Dhabi.
There’s speculative agreement that Intel is the most likely candidate to take over the “trusted foundry” business from IBM.
