IBM to pay $1.5 billion to get rid of its semiconductor business

IBM (NYSE: IBM) announced this morning that it wants so badly to divest its underperforming Microelectronics business that it will pay GLOBALFOUNDRIES $1.5 billion over three years to take over the assets. The deal calls for GLOBALFOUNDRIES to acquire IBM's global commercial semiconductor technology business, including intellectual property, technologies, and employees, subject to completion of applicable regulatory reviews.

The two parties have agreed that GLOBALFOUNDRIES will acquire and operate IBM's semiconductor manufacturing operations and facilities in East Fishkill, NY, and Essex Junction, VT. GLOBALFOUNDRIES says it plans to provide employment opportunities for substantially all workers 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.

GLOBALFOUNDRIES also will acquire IBM's commercial microelectronics business, which includes ASIC and specialty foundry, manufacturing, and related operations and sales. GLOBALFOUNDRIES says it will invest to grow these businesses.

GLOBALFOUNDRIES will serve as IBM's exclusive server processor semiconductor technology provider for 22-nm, 14-nm, and 10-nm semiconductors for the next 10 years once the deal goes through, IBM added. That milestone is expected to occur at some point next year.

The transaction will enable IBM to rid itself of a money-losing business – the unit lost $0.1 billion in the recently concluded third quarter of 2014, IBM reported today, and the same amount in the year-ago quarter – and allow it to turn its attention more fully to fundamental semiconductor research and the development of future cloud, mobile, big data analytics, and secure transaction-optimized systems. IBM says it plans to invest $3 billion over five years in these areas.

GLOBALFOUNDRIES, meanwhile, will add intellectual property (including thousands of patents) and a host of semiconductor expertise in addition to two facilities. It also will enjoy primary access to the research that results from IBM's aforementioned investments via joint collaboration at the Colleges of Nanoscale Science and Engineering (CNSE), SUNY Polytechnic Institute, in Albany, NY.

The new assets will offer GLOBALFOUNDRIES new business opportunities in RF and specialty technologies and ASIC design capabilities, the two companies assert.

"This acquisition solidifies GLOBALFOUNDRIES' leadership position in semiconductor technology development and manufacturing," said Dr. Sanjay Jha, CEO, GLOBALFOUNDRIES. "We can now offer our customers a broader range of differentiated leading-edge 3D transistor and RF technologies, and we will also improve our design ecosystem to accelerate time-to-revenue for our customers. This acquisition further strengthens advanced manufacturing in the United States, and builds on established relationships in New York and Vermont."

IBM will reflect a pre-tax charge of $4.7 billion in its financial results for the third quarter of 2014, which includes an asset impairment, estimated costs to sell the IBM microelectronics business, and cash consideration to GLOBALFOUNDRIES. The $1.5 billion payment to GLOBALFOUNDRIES will be adjusted by the amount of working capital, which is estimated to be $200 million.

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