IBM Spins Off Chip Division, Pays GlobalFoundries $1.5 Billion To Take Over

Good news for IBM’s New York workforce: Your job is safe—for now.

The Armonk-based company announced on Monday that it would sell its global commercial semiconductor technology business to GlobalFoundries, a Santa Clara, California-based semiconductor manufacturer owned by the investment arm of the Emirate of Abu Dhabi. There will be no immediate loss of jobs at IBM as a result of the sale.

IBM paid GlobalFoundries $1.5 billion to take the business unit off its hands. The announcement came alongside a disappointing third-quarter earnings report that reflected IBM’s failure to meet earnings targets and develop new, more profitable revenue streams.

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In a statement released by GlobalFoundries, the company said it will “acquire and operate existing IBM semiconductor manufacturing operations and facilities in East Fishkill, New York, and Essex Junction, Vermont, adding capacity to serve its customers and thousands of jobs to GlobalFoundries’ workforce.” The statement went on to say that the company plans to “provide employment opportunities for substantially all IBM employees at the two facilities who are part of the transferred businesses, except for a team of semiconductor server group employees who will remain with IBM.” When the transaction is complete, GlobalFoundries will be the largest semiconductor technology manufacturing employer in the Northeast. 

New York State helped broker the deal between the two companies with the goal of preserving jobs. IBM receives tax breaks from the state in exchange for a commitment to employ state residents and invest in R&D here. The state struck a deal with IBM in 2011 to expand research and development in New York, and IBM has invested heavily in the SUNY College for Nanoscale and Science Engineering in Albany. As recently as February, Governor Cuomo announced an agreement with IBM to maintain 3,100 high-tech jobs in the Hudson Valley.

IBM, which reported 2013 revenue of more than $99 billion, has had difficulty replacing revenue from its traditional, shrinking business lines—software systems and hardware—with emerging, more profitable services like cloud computing and data storage and analytics.

According to the Wall Street Journal, IBM paid GlobalFoundries $1.5 billion to cover costs that GlobalFoundries will incur to adapt facilities to meet future IBM needs. As part of the sale, GlobalFoundries has agreed to be IBM’s exclusive provider of Power processors (a brand of high-end processors designed for big data applications) for the next 10 years, in exchange for IBM’s intellectual property.

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IBM reported third-quarter revenue of $22.4 billion, down from $23.3 billion a year earlier. The third quarter marked the tenth straight quarter of declining revenue at IBM. Since 2010, IBM has touted an earnings goal of $20 per share by 2015, but announced yesterday that it wouldn’t meet that target.

IBM’s stock price is the third highest of the 30 stocks that comprise the Dow Jones Industrial Average, behind Visa and Goldman Sachs Group. 

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