IBM Cashes In The Losing Chip: Sells Semi-Conductor Unit to Chipmaker Globalfoundries
IBM Cashes In The Losing Chip: Sells Semi-Conductor Unit to Chipmaker Globalfoundries
Its semiconductor unit is proving to be a lot more than IBM bargained for and the IT giant is now getting rid of this loss-making enterprise to contract chipmaker named Globalfoundries. IBM now seeks to focus on big data analytics and could computing instead. It will pay Globalfoundries USD 1.5 billion in cash over a span of the next 3 years for taking the chip making unit, according to a statement issued by both the companies yesterday.
The software services company, according to a Reuters report, took a related pre-tax charge of USD 4.7 billion in its third quarter. The software and IT major also reported a 4% drop in revenues according to the report. Low sales have hurt the software and services businesses of this American company. In premarket trading, IBM shares fell by as much as 8% to USD 167. The core franchise is now free of a troubled area, according to analysts quoted by Reuters who say that this is a good move from the perspective of IBM as well as investors.
IBM has steadily been reducing its presence in the hardware industry. Sales of USD 2.1 billion of the x86 server business was made to the Lenovo group earlier, points out Reuters. Clearly the trend is towards cloud computing now and all roads at IBM lead to “big data analytics.”In the year 2005, Lenovo had acquired the IBM consumer PC laptop business for USD 1.25 billion.
The business being sold is currently oriented towards chip design and manufacturing and it is housed in the systems and technology unit of IBM. Globalfoundries is a Silicon Valley based company and it now seeks to take over the manufacturing operations of IBM in NY and Vermont through this move.
The CEO of Globalfoundries, Sanjay Jha indicated that USD 10 billion will be spent between 2014 and 2015 for development of 10 as well as 14 nanometer and radio-frequency technologies. "As (IBM's) assets become part of Globalfoundries, they will benefit from the scale," Jha said to Reuters. This company is owned by Abu Dhabi based government investment fund Mubadala Development Co.
The company has issued an investor statement saying that the business lacked scale and it has been “generating losses” and the increasing sophistication of semiconductors is making cost of development extremely high. IBM is now looking to free up capital for reallocation in other areas. Revenues are down and profits are diminishing as IBM needs to think ahead if it wants to stay ahead in the game.
Cloud computing is the big thing right now. Everyone from HP to Amazon is concentrating on it. Cloud computing has a potential to change the way technology operates and clearly, this is where the gravy train is also headed. Cloud computing firms are laughing all the way to the bank and it's time IBM joined in.
