IBM to Pay Globalfoundries $1.5B for Chip Business

ARMONK, NY—Locally-based IBM Corp. announced on Monday it will pay Santa Clara, CA-based Globalfoundries $1.5 billion for its global semiconductor technology business. The deal also involves Globalfoundries' takeover of chip-fab manufacturing plants in East Fishkill, NY and Essex Junction, VT.

The two firms have signed a definitive agreement for the sale that will also entail Globalfoundries becoming IBM's exclusive server processor semiconductor technology provider for 22 nanometer (nm), 14nm and 10nm semiconductors for the next 10 years. After the close of the transaction, Globalfoundries will be the largest semiconductor technology manufacturing employer in the Northeast.

Globalfoundries also owns the multi-billion dollar Fab 8 campus in Malta, NY. The campus in Saratoga County, which totals more than 2 million square feet, has been touted by the company as the “world's most advanced semiconductor foundry manufacturing facility.”

"This acquisition solidifies Globalfoundries' leadership position in semiconductor technology development and manufacturing,” says Dr. Sanjay Jha, CEO of 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.”

“The agreement expands our longstanding collaboration, which began when Globalfoundries was created in 2009, and reflects our confidence in Globalfoundries' capability,” says IBM senior vice president and director of research Dr. John E. Kelly III. “This acquisition enables IBM to focus on fundamental semiconductor and material science research, development capabilities and expertise in high-value systems, with Globalfoundries' leadership in advanced technology manufacturing at scale and commitment to delivering future semiconductor technologies.”

Globalfoundries 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. The Albany Times-Union says the deal will have more than 5,000 IBM workers becoming employees of Globalfoundries.

Globalfoundries will also acquire IBM's commercial microelectronics business, which includes ASIC and specialty foundry, manufacturing and related operations and sales.

IBM reports it will take 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.

On Monday, IBM reported disappointing earnings that caused its stock price to fall more than 7% to $169.10. Big Blue stated that third-quarter 2014 diluted earnings from continuing operations were $3.46 per share, compared with diluted earnings of $3.77 per share in the third-quarter of 2013, a decrease of 8%.

“We are disappointed in our performance. We saw a marked slowdown in September in client buying behavior, and our results also point to the unprecedented pace of change in our industry. While we did not produce the results we expected to achieve, we again performed well in our strategic growth areas—cloud, data and analytics, security, social and mobile—where we continue to shift our business. We will accelerate this transformation,” says Ginni Rometty, IBM chairman, president and chief executive officer.