IBM willing to pay $1B to shed its chipmaker

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IBM willing to pay $1B to shed its chipmaker

International Business Machines was willing to pay GlobalFoundries to take on IBM’s money-losing chip-manufacturing operations, according to a person familiar with the process.

IBM was offering about $1 billion to persuade GlobalFoundries to take the unit, said the person, who asked not to be identified because the negotiations were private. GlobalFoundries wanted to be paid about $2 billion, enough to offset the division’s losses, the person said.

IBM’s willingness to pay underscores the urgency for CEO Ginni Rometty to get less profitable businesses off the books. Even so, letting the deal unravel shows Rometty wasn’t willing to exit at any cost.

With the talks breaking down, the chip-manufacturing business will continue to weigh on IBM’s profit. The unit loses as much as $1.5 billion a year, a person familiar with the matter said in June. Rometty is striving to meet 2015 earnings goals after nine straight quarters of falling revenue.

“The first rule of negotiating anything is you need to be able to walk away from a deal,” Jim McGregor, founder of Tirias Research, said in an interview from Phoenix. “This might just be posturing. You may see this resurrect itself in three to six months.”

Ed Barbini, a spokesman for an IBM office in Armonk, New York, declined to comment, as did Kevin Kimball, a spokesman for GlobalFoundries.

Bloomberg reported last month that the talks had broken down after the companies failed to agree on terms, citing people familiar with the process.

It also reported in June that GlobalFoundries was primarily interested in acquiring IBM’s engineers and intellectual property rather than manufacturing facilities, according to people with knowledge of the matter. GlobalFoundries would have acted as a supplier for IBM’s microprocessors, the people said at the time.

GlobalFoundries, owned by an investment arm of the government of Abu Dhabi, had placed little to no value on IBM’s factories because they were too old, a source said two weeks ago.

To stay competitive in manufacturing, IBM may have to invest billions of dollars to keep its plants up to date with newer chip technology. IBM’s location in East Fishkill, New York, cost $2.5 billion to build.

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

IBM’s microelectronics manufacturing revenue slid 17 percent in the first half of 2014, according to a company filing. That unit accounted for less than 2 percent of IBM’s $100 billion in revenue last year.

Bloomberg





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