Interesting Slant on IBM Deal

Aiming to become the global leader in chip-scale photonic solutions by deploying Optical Interposer technology to enable the seamless integration of electronics and photonics for a broad range of vertical market applications

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EileenTeahon

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Interesting Slant on IBM Deal

posted on Dec 09, 2014 08:16PM

IBM Deal Done

Every once in awhile I break with normal journalistic decorum and like a little boy in the school yard get pleasure from shouting “I told you so” (OK…maybe a little more than every once in awhile). My little Italian grandmother (Nonna) told me not to gloat when you were right about something because no one likes such people… but it’s hard to resist. [For my non US readers, gloating is “…dwelling on one's correctness with smugness.”]

IFTLE came to the conclusion that IBM would sell off their semiconductor business several years ago when it became clear that future node fabs would cost far more to construct ( $4-6B) than the IBM semi business was making on a yearly basis (~ $1B). These simple economics would eventually prevail. As they pulled so called “IBM friends and family” around them in NY a few years ago, it became clear that they were positioning to have one of these “friends” buy the business and become their supplier. It has been clear for more than a year that Global Foundries was the logical choice.

Some were shocked when rumors leaked that IBM was having to sweeten the pot with significant cash in order to get GF to take over their money loosing semiconductor operation. But, as I have explained previously, that’s what is required when you take over a business that’s loosing ~ $2B / yr . What Global gets out of this deal is not the manufacturing capability or the customer list, but rather the people and the IP. Once they restructure I see this as a good deal for GF and for IBM employees who obviously were no longer required by their now ex employer.

IBM has now officially announced the deal with Globalfoundries [link]. IBM will pay GF $1.5B to take over their chip manufacturing operations, which will continue to produce processors used in IBM systems.

Recently reported revenues from IBM’s Systems and Technology segment, which includes the company’s computers, declined 14%. The company’s other hardware segment–the Power systems, based on IBM-designed computer chips, fell 12%.