IBM Pays Global Foundries $1.5 Billion To Take Unprofitable Chip Manufacturing Business Off Its Hands

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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.

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Lucian Armasu
Lucian Armasu
Lucian Armasu is a Contributing Writer for Tom's Hardware US. He covers software news and the issues surrounding privacy and security.
21 Comments Comment from the forums
  • InvalidError
    The rate at which chip manufacturing is consolidating due to "smaller players" no longer having sufficient volumes to justify on-going fab ownership is scary.

    It shows how ridiculously expensive moving forward is becoming.
    Reply
  • junkeymonkey
    The Emirate of Abu Dhabi is the owner of the company

    ibm may just want to distance them selves from that all the unrest in the mid east you never know where that can lead

    Reply
  • usertests
    14415847 said:
    The Emirate of Abu Dhabi is the owner of the company

    ibm may just want to distance them selves from that all the unrest in the mid east you never know where that can lead

    I don't think you read the article, but if you did, your comprehension is staggeringly low.
    Reply
  • junkeymonkey
    all you got to do is look at what went on during ww2 and how these things worked out
    Reply
  • IInuyasha74
    Sounds like Global Foundries got an amazing deal. The additional facilities, cash, and patents is a huge plus to them and on top of the contract from IBM to make all their stuff.

    @junkeymonkey: Like usertests said, you really need to read the article better. Global Foundries is owned by an investment arm of the government of Abu Dhabi. IBM's foundries were not owned and did not have any connection to Abu Dhabi. IBM just signed an agreement giving their foundries, money, and patents to Global Foundries, as well as an agreement to work together for at least the next 10 years. If they wanted to distance themselves from the middle east, why would they sign an agreement saying they legally have to work with them or stop producing computer chips?
    This has nothing to do with WWII at all.
    Reply
  • Outlander_04
    I wish someone would pay me $1.5 Billion to take over their assets !
    Reply
  • yeesh
    I'd have offered to do it for $1B, but they probably could have talked me down to $750M.

    Of course, it's not some silly one-way street: the people who negotiated, arranged, and closed the deal on both sides are being very well compensated I'm sure. Fair is fair, after all.
    Reply
  • Outlander_04
    14418254 said:
    I'd have offered to do it for $1B, but they probably could have talked me down to $750M.

    Of course, it's not some silly one-way street: the people who negotiated, arranged, and closed the deal on both sides are being very well compensated I'm sure. Fair is fair, after all.

    Both sides had to think it was a win for them , and presumably it will be .
    IBM stops making losses , Global Foundries gets economies of scale and a large new client .
    Good for them , good for us the consumer
    Reply
  • IInuyasha74
    14418297 said:
    14418254 said:
    I'd have offered to do it for $1B, but they probably could have talked me down to $750M.

    Of course, it's not some silly one-way street: the people who negotiated, arranged, and closed the deal on both sides are being very well compensated I'm sure. Fair is fair, after all.

    Both sides had to think it was a win for them , and presumably it will be .
    IBM stops making losses , Global Foundries gets economies of scale and a large new client .
    Good for them , good for us the consumer

    More than just that, the big plus to Global Foundries you have pretty much spot on, however the bigger win for IBM is they will get smaller processes for a much lower cost. Upgrading one of these things costs billions of dollars, more than the $1.5 billion that IBM paid Global Foundries, and while its being upgraded the facility cannot produce units. By doing this deal, IBM gets Global Foundries to produce whatever it needs in other places on already smaller fabrication processes (IBM's facilities were at 45nm, Global Foundries is at 28nm, working on 22/20nm) and at the same time their old facilities are upgraded to the newest equipment to further their manufacturing goals.

    Also, slightly off topic, because of what I just said we should expect to see we should expect to see a new Wii U come out that is probably smaller and uses less power. The Wii U parts are currently made at the IBM facility, and after it closes will need parts made else where. Its doubtful that it will be 28nm upgrade since those are heavily used at the moment for pretty much everything AMD makes, but likely a 32nm low power version is coming.
    Reply
  • rdc85
    Can someone please explain this article for me ? (my English rather bad)

    "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."

    So is the IBM or The GoFo that have to invest in the R&D ($3 Bi.) ?
    Reply