IBM Fails To Offload Semiconductor Biz – Report

Tom Jowitt is a leading British tech freelance and long standing contributor to TechWeek Europe

IBM and Globalfoundries walk away from a deal for IBM’s semiconductor unit, after a disagreement over price

IBM has failed in its attempt to sell off its chip manufacturing operations, after it and Globalfoundries reportedly failed to agree on a price.

IBM had been exploring the possibility of selling the chip business, which requires billions of dollars of capital investment in production and R&D, for a while now.

It was thought IBM would retain its chip-design capability and R&D operations, but sell the manufacturing unit. The strategy would effectively make IBM a fabless chip designer, along the lines of Britain’s successful ARM Holdings, whose processor designs dominate in smartphones and mobile devices. To back up this model, IBM had already announced plans to license its Power RISC processor to other vendors through the OpenPower Consortium.

Deal Failure

The decision for IBM and Globalfoundries to walk away from a deal for the loss making unit was revealed by Bloomberg, which cited people familiar with the process. The sources asked not to be identified because the negotiations are private.

Globalfoundries made an offer that was rejected by IBM as too low, said the people. Apparently Globalfoundries had placed little or no value on IBM’s factories because they are too old.

Both companies have refused to comment on the report. And of course, it should be remembered that the two companies can always restart acquisition talks in the future.

The deal rejection comes at a difficult time for IBM. Earlier in the month it had reported mixed second quarter results, as a healthy rise in profits thanks to cost cutting was offset by ongoing market concern about falling hardware revenues and sluggish software sales.

virginia rometty IBM CEOChip Expertise

CEO Ginni Rometty has been attempting to reverse nine straight quarters of revenue decline by offloading less profitable units. Earlier in the year she oversaw the sale of IBM’s low-end server unit to Lenovo.

Rometty is keen to retain and even extend IBM’s chip design expertise, and instead wants to only offload the manufacturing operation. In July she pledged a mammoth $3bn (£1.7bn) investment in chip research over the next five years, aimed at discovering semiconductor breakthroughs and cramming ever more components on a chip.

It hopes that its next generation of chip designs will meet the demanding requirements of big data and cloud computing in the years ahead.

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