International Business Machines Corp. (NYSE:IBM) Offloads Chip Arm for $1.5 Billion

International Business Machines Corp. (NYSE:IBM) has reportedly reached an agreement with GlobalFoundries to offload its loss-making, chip manufacturing arm. The deal is valued at $1.5 billion according to the Wall Street Journal. The arm has been producing chips for IBM’s computers, as well as other external customers.

IBM Wanted To Sell For $2 Billion

IBM is believed to have held talks with Intel Corporation (NASDAQ:INTC), and Taiwan Semiconductor Mfg. Co. Ltd. (ADR) (NYSE:TSM), before settling on GlobalFoundries on the sale. According to people with inside information; the company hoped to sell the arm for up to $2 billion after heated disagreements with GlobalFoundries before settling on a $1.5 billion price tag.

International Business Machines Corp. (NYSE:IBM)’s manufacturing capability has lagged those of Microsoft Corporation (NASDAQ:MSFT) and Sony Corp (ADR) (NYSE:SNE) especially in the production of consoles for video-games. The cost of running the facility as opposed to buying chips is believed to have been the reason behind the unprecedented sale. Cost for upgrading equipment to achieve desired manufacturing processes for new generation chips has already pushed some players out of the manufacturing business.

Terms of Sale

GlobalFoundries owned by Abu Dhabi sovereign has emerged to be one of the biggest players in the space second to TSM. GlobalFoundries was formed from a spinoff of AMD’s manufacturing arm in 2009. Disagreements are believed to have emerged during the negotiations on who was to be the owner of the intellectual property and research that formed part of the chip business

IBM is believed to have sought to keep full control of the design of the chips that it believes will form an integral part of its future generation of computers. The agreement will see GlobalFoundries taking full control of International Business Machines Corp. (NYSE:IBM)’s manufacturing plant in Fishkill as well as a small plant in Vermont. Up to 5,000 IBM employees, are to be under the management of GlobalFoundries once the deal is sealed.

About the Author

Terrel is US Markets Daily's business news reporter. She joined US Markets Daily after five years as a print reporter.

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