IBM and Global Foundries announced today that Global Foundries will take over IBM's unprofitable chip manufacturing business for free, along with $1.5 billion in cash paid over the next three years.
Global Foundries will be IBM's exclusive foundry provider for the next 10 years for the 22nm, 14nm and 10nm process nodes. In exchange, Global Foundries will also get access to IBM patents.
"While IBM has world-class technology and intellectual property, the company has lacked scale," IBM said in a regulatory filing today. "As a subscale business, IBM's microelectronic business has been generating losses."
Global Foundries, owned by an investment arm of the government of Abu Dhabi, wanted to tap into the expertise of IBM engineers in semiconductor design and manufacturing. Global Foundries will operate manufacturing facilities in East Fishkill, New York, as well as Essex Junction, Vermont, and it will also add IBM's commercial microelectronics business.
IBM has been trying to part with the chip-manufacturing division since last year, according to one of Bloomberg's sources. IBM has been a partner of Global Foundries since it became a spinoff of AMD's production facilities in 2009, so Global Foundries was a natural fit for taking over IBM's division.
However, as IBM's chip-manufacturing business was already losing money, it wasn't an attractive acquisition target for Global Foundries. IBM then approached Global Foundries with an offer to take over the unit for free, while also receiving $1 billion in cash. Global Foundries wanted $2 billion, but what it wanted even more than the manufacturing facilities and cash was IBM's patents and its engineers' know how.
IBM then agreed to give Global Foundries all of its manufacturing-related patents along with $1.5 billion in cash. IBM will keep the systems-related patents as well as its intellectual property for the design of its own chips. The company intends to invest $3 billion on semiconductor R&D over the next five years.
The two companies will complete the deal in 2015, pending regulatory approvals.