IBM put out a press release Sunday that it will be making a big announcement Monday morning before its quarterly earnings call, and it seems the announcement is related to the fact that it’s unloading an unprofitable chip unit.
IBM is supposedly paying Globalfoundries, which is owned by an Abu Dhabi sovereign wealth fund, $1.5 billion over three years to take its chip business off its hands. IBM will also receive $200 million in assets, for a net transaction of $1.3 billion.
IBM has been searching for someone to take on the chip-manufacturing arm for much of the year but has been hampered by the small number of players left in the consolidating business, giving it little bargaining power.
The huge cost of upgrading equipment and manufacturing processes for each new generation of chips, which involves shrinking the elements in a semiconductor to ever-smaller sizes, has already forced others to quit.
In a 10-year partnership, Globalfoundries will supply IBM with Power processors in exchange for access to IBM’s intellectual property, the people said. That would allow Globalfoundries to access key chip-making technology and guarantee supply of chips that IBM needs for its systems, like mainframe computers and its Watson data-analytics technology.
IBM has been steadily shedding its hardware assets and is closer to taking on a chip licensing model approach much like ARM Holdings. IBM earlier this month closed a deal to sell its x86 server business to Lenovo for $2.1 billion. Its hardware business now centers on Power architecture, which is best known for powering the Watson supercomputer, which outwitted humans in the TV game show “Jeopardy.”
IBM is a top investor in a $4.4 billion deal in 2011 to expand research and development in New York, mainly at the SUNY College for Nanoscale and Science Engineering in Albany. New York owns the equipment and facilities in Albany, giving the state sway with the companies.
IBM shares closed Friday at $182.05 per share, up $2.21.
Analysts expect IBM to post earnings of $4.32 a share in the third quarter, according to Yahoo Finance. That compares to $3.99 a share the year before.
IBM has facilities in Endicott, Broome County, with about 700 workers, along with its offices and facilities in Westchester and Dutchess counties, including its mainframe plant in Poughkeepsie. Nearly 7,000 IBMers work in Dutchess.
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