IBM to Pay Globalfoundries $1.5 Billion to Take Chip Business

As Big Blue tries to adapt to changes brought on by mobile and cloud computing, it continues to get rid of money-losing commoditized businesses.

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IBM, continuing to shed money-losing businesses that are not central to its core efforts around such areas as big data analytics and the cloud, will pay chip foundry Globalfoundries $1.5 billion to take Big Blue's semiconductor business off its hands.

The deal, which executives announced Oct. 20 along with the company's disappointing third-quarter financial results, comes less than a month after IBM closed the $2.1 billion deal that sent its low-end x86 server business to Lenovo.

The move comes as IBM looks to quickly adjust to a more mobile- and cloud-based tech world that is moving away from the kinds of proprietary offerings that IBM and other established vendors—such as Cisco Systems and Oracle—have made their riches on over the past several decades. Enterprises increasingly are favoring open cloud systems over tightly integrated, proprietary solutions, according to Patrick Moorhead, principal analyst with Moor Insights and Strategy.

"Even if [a business is] doing a private cloud, they don't want to do it on a proprietary platform, and that's what you get with IBM," Moorhead told eWEEK.

Speculation about IBM's interest in selling its semiconductor business began circulating earlier this year, soon after the x86 server deal with Lenovo was announced.

According to the deal, Globalfoundries will get IBM's existing semiconductor manufacturing operations in East Fishkill, N.Y., and Essex Junction, Vt., and officials said they plan to offer jobs to "substantially all IBM employees at the two facilities." Once the deal closes next year, the chip foundry also will get IBM's commercial microelectronics business, from ASICs to manufacturing to sales.

­For IBM, the deal lets it crawl out from under a business that some analysts said has lost more than $1 billion over the past several years and was continuing to see declining demand, forcing the expensive manufacturing facilities to operate at less than scale and becoming a financial burden on the company. IBM has become the only consumer of its Power chips; had lost the performance edge it once held over Intel's x86 server chips; was no longer selling its chips to Microsoft, Nintendo and Sony for their gaming consoles (a business taken over by Advanced Micro Devices); and had little hope of gaining any traction in the booming mobile chip space dominated by ARM and its manufacturing partners.

"Thus, the odd terms of the deal, which has IBM paying Globalfoundries, like some garbage hauler, to take the material away," Roger Kay, principal analyst with Endpoint Technologies Associates, wrote in a column on

IBM—along with such partners as Google, Nvidia and Mellanox Technologies—last year established the OpenPower Foundation to enable third parties to build their own Power-based server chips in hopes of extending the architecture's reach and make it more competitive against Intel- and ARM-based processors. How well that will work is up for debate.

"IBM is working like mad to shift to an open model, but it might be a case of 'too little, too late,'" Moorhead said. "OpenPower may have been interesting three or four years ago."