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IBM to pay GlobalFoundries $1.5B to take over chip fabs

IBM and GLOBALFOUNDRIES today announced that GLOBALFOUNDRIES will acquire IBM’s global commercial semiconductor technology business, including IBM’s intellectual property, technologists and technologies.

IBM will pay GLOBALFOUNDRIES $1.5 billion in cash over the next three years to take the chip operations off its hands. The cash consideration will be adjusted by the amount of working capital which is estimated to be $200 million.

Workers prep Global Foundries' newest semiconductor factory, "Fab 8" in Saratoga County, New York State Source: IBM

Workers prep Global Foundries’ newest semiconductor factory, “Fab 8″ in Saratoga County, New York State. Source: IBM

GLOBALFOUNDRIES will also become IBM’s exclusive server processor semiconductor technology provider for 22nm, 14nm and 10nm semiconductors for the next 10 years.

It its official statement, IBM said the agreement will enable the company to further focus on fundamental semiconductor research and the development of future cloud, mobile, big data analytics, and secure transaction-optimized systems. IBM will continue 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.

Through the acquisition, GLOBALFOUNDRIES will gain substantial intellectual property including thousands of patents, making GLOBALFOUNDRIES the holder of one of the largest semiconductor patent portfolios in the world.

GLOBALFOUNDRIES will acquire and operate existing IBM semiconductor manufacturing operations and facilities in East Fishkill, New York and Essex Junction, Vermont, adding capacity to serve its customers and thousands of jobs to GLOBALFOUNDRIES’ workforce. 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. 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.

IBM took a related pre-tax charge of $4.7 billion in its third quarter. It also reported a 4 percent drop in revenue on Monday.

What the analysts are saying

In terms of its 14nm FinFET collaboration with Samsung, the acquisition and the sudden influx of top talent from IBM will certainly help get GLOBALFOUNDRIES up to speed, Robert Maire of Semiconductor Advisors LLC reported.

“Even though Samsung still holds the keys and most of the cards in their relationship, the addition of the IBM horsepower does help even things a little bit even though IBM hasn’t been a serious player in the semiconductor business for quite a while it still has a deep well of expertise,” said Mr. Maire.

Currently, analysts at Summit Research Partners are not concerned about the long-term financial impact of the acquisition.

“We think that at present, when the transfer of IBM’s chip manufacturing assets to GLOBALFOUNDRIES is done, this is a non-event to the semiconductor industry for the most part,”  said Srini Sundararajan, Semiconductor, Semi-cap Equipment Analyst at Summit Research Partners. ”That is sad considering that there were times in the 90s that IBM and Intel competed with one another over bragging rights for technological advancements.”

“In terms of potential impact to semiconductor equipment companies, there would likely be minimal to no impact as potential capex spend would be absorbed within the capex spend of Global Foundries,” Mr. Sundararajan concluded.

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