IBM announced on Monday an agreement with Globalfoundries to transfer its loss-making commercial semiconductor technology business, including intellectual property, technologists and technologies related to IBM Microelectronics. GLOBALFOUNDRIES will also become IBM's exclusive server processor semiconductor technology provider for 22 nanometer (nm), 14nm and 10nm semiconductors for the next 10 years.
In an unusual move, GlobalFoundries won't be paying IBM to acquire those operations, but rather IBM will be paying GlobalFoundries to take the business off its hands., IBM will pay Globalfoundries $1.5 billion in cash over the next three years to take the chip operations off its hands, the companies said in a statement on Monday.
The transaction enables IBM to further focus on semiconductor research and the development of future cloud, mobile, big data analytics, and secure transaction-optimized systems. IBM says it continues its previously announced $3 billion investment over five years for semiconductor technology research to lead in the next generation of computing. GLOBALFOUNDRIES will have primary access to the research that results from this investment through joint collaboration at the Colleges of Nanoscale Science and Engineering (CNSE), SUNY Polytechnic Institute, in Albany, N.Y.
As part of this Agreement, GLOBALFOUNDRIES will gain intellectual property including thousands of patents, strengthening the company's semiconductor patent portfolio. GLOBALFOUNDRIES also will benefit from an influx of one of the best technical teams in the semiconductor industry, as the company is moving towards the advanced process geometries at 10nm and below. Additionally, the acquisition opens up business opportunities in radio frequency (RF) and specialty technologies and ASIC design capabilities.
"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."
"The Agreement expands our longstanding collaboration, which began when GLOBALFOUNDRIES was created in 2009, and reflects our confidence in GLOBALFOUNDRIES’ capability," said IBM Senior Vice President & 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. We are grateful for the leadership and investments by the states of New York and Vermont in supporting the semiconductor industry."
GLOBALFOUNDRIES has capital expenditure plans of approximately $10 billion in 2014-2015, with the majority being invested in New York.
GLOBALFOUNDRIES will acquire and operate existing IBM semiconductor manufacturing operations and facilities in East Fishkill, New York and Essex Junction, Vermont. The company will also 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. After the close of this transaction, GLOBALFOUNDRIES will be the largest semiconductor technology manufacturing employer in the Northeast.
GLOBALFOUNDRIES will also acquire IBM's commercial microelectronics business, which includes ASIC and specialty foundry, manufacturing and related operations and sales. GLOBALFOUNDRIES plans to invest to grow these businesses.
On Monday, IBM reported that its adjusted earnings from continuing operations were $3.68 per share, while revenue totaled $22.4 billion.
"We are disappointed in our performance," Chief Executive Ginni Rometty said in a statement. "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," she said.
IBM's cloud offerings delivered as a service are now at an annual run rate of $3.1 billion, compared with $2.8 billion as of the second quarter.
Rometty has made a concerted effort to offload less profitable businesses -- like the low-end server unit that Lenovo Group Ltd. agreed to buy for $2.1 billion. After clearing regulatory hurdles, that deal closed on Oct. 1.
The majority of IBM’s sales, about 55 percent last year, comes from its services business.
IBM’s backlog for services fell 7 percent from a year earlier to $128 billion.