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IBM Pays GlobalFoundries $1.5 Billion To Shed Its Chip Division

Posted by timothy on from the watson-told-them-to dept.

helix2301 writes with word that Big Blue has become slightly smaller: IBM will pay $1.5 billion to GlobalFoundries in order to shed its costly chip division. IBM will make payments to the chipmaker over three years, but it took a $4.7 billion charge for the third quarter when it reported earnings Monday. The company fell short of Wall Street profit expectations and revenue slid 4 percent, sending shares down 8 percent before the opening bell.

19 of 84 comments (clear)

  1. I See Where This is Going by Greyfox · · Score: 4, Funny

    They'll drop their famous fish division next and try to make up all their revenue in malt vinegar services.

    --

    I'm trying to teach myself to set people on fire with my mind... Is it hot in here?

  2. Bigger fuckup than John Akers by gelfling · · Score: 5, Insightful

    Ginni is a bigger fuckup than John Akers. She and her cronies are fucking pirates running IBM like it's a stolen treasure box and they will personally enrich themselves until there's nothing left. Roadkill 2015 was the plan and everyone knew it was 100% bullshit. At this point all they can do is fire everyone who's not an executive, in the US, re incorporate in a developing nation and sell off the entire company piecemeal. IBM is a poorly run investment fund that simply buys and sells smaller companies to dig as much cash out of them as possible then tossing them away.

    Paying someone to take a division off your hands? Are you fucking serious? THAT's better than simply taking that money and investing it into the division? Holy the server division just sold to Lenovo must be happy. They'll have a viable business with actual jobs whereas IBM is too busy borrowing money to buy back stock price with no revenue to pay off the debt.

    1. Re:Bigger fuckup than John Akers by lucabrasi999 · · Score: 3, Insightful

      Ginni learned how to do this from her predecessor. Sam was the 'visionary', Ginni is just following through on his roadmap.

    2. Re:Bigger fuckup than John Akers by FooAtWFU · · Score: 4, Insightful

      THAT's better than simply taking that money and investing it into the division?

      I don't know, that could just be throwing good money after bad. This isn't a software division, it's not even like their server hardware division, it's chipmaking. It's kind of a go-big-or-go-home game where your competitors -- well-funded types like, say, Intel -- can easily pour many billions of dollars into next-generation fabrication processes and equipment which will readily put any half-assed investment to shame. I don't think IBM's chip business has the customer base to make "go big" profitable, or any reasonable plan to acquire new customers, so "go home" makes a lot of sense here.

      Now, the wisdom / folly of gutting the rest of IBM's various divisions is left as an exercise to the reader.

      --
      The World Wide Web is dying. Soon, we shall have only the Internet.
    3. Re:Bigger fuckup than John Akers by MachineShedFred · · Score: 2

      So maybe they shouldn't have chased off their chip customers years ago by refusing to make a functioning piece of silicon that didn't require the Hoover Dam to power it, and a cooling tower to make sure it didn't melt?

      And the POWER line of CPUs dies with a whimper.

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      Slashdot still doesnâ(TM)t support Unicode after it was added to the HTML standard in 1997.
    4. Re:Bigger fuckup than John Akers by hendrips · · Score: 5, Interesting

      I can't speak for any of IBM's other decisions, but in this case I have to strongly disagree with you. The IBM semiconductor business has been losing money hand over fist recently. They can't compete with Samsung or TSMC on price and volume, and there's not enough interest in specialty chips or POWER to make up the slack. It costs at minimum $5 billion to build a new fab, and IBM would have to build at least one, maybe two new fabs, not to mention updating their existing fabs, in order to be competitive with the big guys.

      So, IBM could spend $5 billion - $10 billion just to catch up to their competitors, and still be at a very serious risk of the division being unprofitable, or they could spend $1.3 billion knowing for certain that the bleeding will stop. I only wonder what took them so long.

      Also, for what it's worth, IBM is allegedly doing this deal in part so that it can focus more money into design research. They've announced a $3 billion investment into their semiconductor research division, which they aren't getting rid of. The implication is that the manufacturing division was crowding out any other R&D spending, and that IBM can now focus on high margin ARM-style licensing instead of getting dragged further into a war with TSMC et al. that they would inevitably lose.

    5. Re:Bigger fuckup than John Akers by erikscott · · Score: 3

      I'm still trying to work out why they're paying GlobalFoundries to take the plants. The pension argument doesn't make sense - IBM switched from "defined benefit" to "defined contribution" about ten years ago, so they can walk away on a whim now. The only factors I can think of are:

      1) IBM received a decent subsidy ($600M) from the feds to run a "trusted semiconductor foundry" line, on US soil (google it - not a secret). The government does this in several markets and industries just to make sure they prop up at least one US supplier - they used to pay Micron to make RAM in the US (and may still). Seemed at the time like they wanted to support "one architecture in addition to x86", which would of course be POWER. So, would a shutdown have triggered a repayment clause?

      2) Or... semiconductor manufacturing is a nasty business - literally. Maybe it's cheaper to pay someone to take it than it is to clean up all the, say, arsenic that various processes use a lot of. Still, I would think that just sealing the doors with concrete and walking away would be pretty cheap, too.

  3. Re:so... by Greyfox · · Score: 5, Informative

    They're really good at outsourcing and cutting employee benefits. Eventually they'll be down to one employee who's outsourced through 15 different countries and actually pays them to work there. Then they'll be the most profitable company in the world!

    --

    I'm trying to teach myself to set people on fire with my mind... Is it hot in here?

  4. Lots of things by brunes69 · · Score: 3, Informative

    Enterprise Software - IBM is still the kingpin in this

    Cloud - Since they bought SoftLayer and combined them in with their existing portfolio, IBM is one of the largest companies in cloud today

    Security - Taken as a standalone unit, IBM Security software & services is the second largest company in security today, second only to Symantec. It's bigger than McAfee now.

    1. Re:Lots of things by brunes69 · · Score: 2

      I didn't say they "dominate in the cloud", I said they were one of the largest companies in cloud. I never even said they were the largest.

      The largest players in general compute cloud are Amazon, Oracle, ATT, Verizon, IBM, Microsoft, Google. Any one of these players could compete for a 100 million dollar deal.

      You could also group Salesforce, Concur and some other very large cloud-specific companies in there.

  5. Need to remove the M from IBM by sasparillascott · · Score: 5, Insightful

    Probably need to change the name to IBC and drop the M as they are rapidly on that road to not really building/creating anything anymore - and just being another offshoring consulting firm (once they offshore the managers they could change it to Indian Business Consultants).

  6. Re:How on earth? by brunes69 · · Score: 4, Insightful

    The main reason is it costs A LOT of money to lay people off due to severance payments and things like having to pay out retirement benefits etc.

  7. Re:How on earth? by FooAtWFU · · Score: 2

    At a guess: the sale may come with contractual obligations -- e.g. if IBM has agreed to design and manufacture chips for a certain third party for a certain length of time.

    --
    The World Wide Web is dying. Soon, we shall have only the Internet.
  8. Re:so... by whereiswaldo · · Score: 2

    I don't know, but I can't help but be impressed by their artificial intelligence research. Seems to me that investment will pay off big as it is already having success.

  9. Re:How on earth? by edxwelch · · Score: 2

    Obviously, they should publish the full contract, just so slashdotters can give it their seal of approvial

  10. Retirement Heist - Ellen E. Schultz by Bonzoli · · Score: 2

    Its a great book, you should read it and the light will go on. It features IBM a lot, right next to GM.

  11. Re:so... by slashmydots · · Score: 2

    According to NPR this morning, they're the largest IT services company in the world. I think that's due solely to them going 3x over budget on every project though. They're basically Oracle mixed with SAP.

  12. How on earth? by rayzat · · Score: 3, Interesting

    A couple of reasons. First as others have mentioned IBM still needs the lines. IBM's processor design is fairly integrated. It needs custom circuits which really on their fabrication technology. Their chip design process is the antithesis of fabless development. So they can't just shut off lights to the fab without crippling the Power, Mainframe, and high end storage business for years to come. The other issue is there are customers getting chips manufactured. If you shut that down there are typically very steep contract termination fees. This is really 6 year wind down with higher costs every year. The fab business is very cutthroat, you have to hit fairly high yields and have the line near full capacity or else you lose a boatload because the fixed costs are so high. They've been getting out of this business for years, especially on the low end. This is just the last step.

  13. Re:so... by Anonymous Coward · · Score: 5, Insightful

    This is in my experience accurate. IBM is one of the larger purveyors of wage arbitrage in the market.

    From time to time over the past 15 years I have been subbed into IBM to fix things. Currently I am working as a developer fixing a real mind boggling mess. The code base for this product is almost entirely now sourced from China, with some Indians and a few Brazilians thrown in for good measure. Oh sure, the project is fronted by English speakers from the USA for the purposes of sales, but the actual work is all done for bottom dollar anywhere BUT the USA ... until deadlines are missed, features are forgotten and things start to fall apart.

    Then they hire people like me for 200+/hr to rewrite it all again.

    It turns out that when you translate requirements through 3 language and cultural filters then pay the developers 4 bucks an hour you get shit code. Who knew right?