IBM Pays GlobalFoundries $1.5 Billion To Shed Its Chip Division

helix2301 writes with word that Big Blue has become slightly smaller: IBM will pay $1.5 billion to GlobalFoundries in order to shed its costly chip division. IBM will make payments to the chipmaker over three years, but it took a $4.7 billion charge for the third quarter when it reported earnings Monday. The company fell short of Wall Street profit expectations and revenue slid 4 percent, sending shares down 8 percent before the opening bell.

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[account_deleted]

Comment removed based on user account deletion

Re:so...

[Greyfox]

They're really good at outsourcing and cutting employee benefits. Eventually they'll be down to one employee who's outsourced through 15 different countries and actually pays them to work there. Then they'll be the most profitable company in the world!

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[Anonymous Coward]

They're really good at outsourcing and cutting employee benefits.

If that were true, they wouldn't be paying GlobalFoundries to get the chip division off their hands.

GlobalFoundries is being paid to accept huge employee obligations -- the same sorts of obligations that other old, established industries in the north and midwest have struggled to handle.

Re:so...

[Anonymous Coward]

This is in my experience accurate. IBM is one of the larger purveyors of wage arbitrage in the market.

From time to time over the past 15 years I have been subbed into IBM to fix things. Currently I am working as a developer fixing a real mind boggling mess. The code base for this product is almost entirely now sourced from China, with some Indians and a few Brazilians thrown in for good measure. Oh sure, the project is fronted by English speakers from the USA for the purposes of sales, but the actual work is all done for bottom dollar anywhere BUT the USA ... until deadlines are missed, features are forgotten and things start to fall apart.

Then they hire people like me for 200+/hr to rewrite it all again.

It turns out that when you translate requirements through 3 language and cultural filters then pay the developers 4 bucks an hour you get shit code. Who knew right?

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[gweihir]

My condolences on having to actually fix this type of mess. I usually only get to look at it and tell people that the code is insecure and sucks for some other reasons. Decent hourly rate though, do not go lower. Going cheap for software production has to be expensive, or they will never understand what they are doing wrong.

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[__aaltlg1547]

They're in the business services business now, mostly.

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[gweihir]

Yes, they sell arrogance combined with incompetence, as a recent observation I made at one of our customers shows.

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[SuperTechnoNerd]

My father is turning in his grave. 37 years he worked at IBM 25 of which he designed and layed out chips at East Fishkill..
So sad.

Lots of things

[brunes69]

Enterprise Software - IBM is still the kingpin in this

Cloud - Since they bought SoftLayer and combined them in with their existing portfolio, IBM is one of the largest companies in cloud today

Security - Taken as a standalone unit, IBM Security software & services is the second largest company in security today, second only to Symantec. It's bigger than McAfee now.

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[Njorthbiatr]

Amazon is a giant man. It's not just a dotcom bookstore.

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[Anonymous Coward]

Actually Amazon is a giant woman.

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[brunes69]

I didn't say they "dominate in the cloud", I said they were one of the largest companies in cloud. I never even said they were the largest.

The largest players in general compute cloud are Amazon, Oracle, ATT, Verizon, IBM, Microsoft, Google. Any one of these players could compete for a 100 million dollar deal.

You could also group Salesforce, Concur and some other very large cloud-specific companies in there.

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[NothingWasAvailable]

Pretty sure IBM is actually making money running their cloud, unlike Amazon who are content to lose money to build up market share.

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[hsmith]

Parent means enterprise consulting "no one ever got fired for buying IBM"

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[whereiswaldo]

I don't know, but I can't help but be impressed by their artificial intelligence research. Seems to me that investment will pay off big as it is already having success.

Solution in search of a problem

[tomhath]

"pay off big" means they'll need to sell it to someone. So far they've just given impressively staged marketing demos.

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[slashmydots]

According to NPR this morning, they're the largest IT services company in the world. I think that's due solely to them going 3x over budget on every project though. They're basically Oracle mixed with SAP.

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[Anonymous Coward]

According to NPR this morning, they're the largest IT services company in the world. I think that's due solely to them going 3x over budget on every project though. They're basically Oracle mixed with SAP.

They're the model for Oracle and SAP.

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[gweihir]

From recent experience, they provide outrageously expensive and highly arrogant, yet utterly incompetent consultants in the "big data" area.

I See Where This is Going

[Greyfox]

They'll drop their famous fish division next and try to make up all their revenue in malt vinegar services.

Mod Parent +Malt Vinegar Services

[handy_vandal]

Made me laugh! One more time:

They'll drop their famous fish division next and try to make up all their revenue in malt vinegar services.

Bigger fuckup than John Akers

[gelfling]

Ginni is a bigger fuckup than John Akers. She and her cronies are fucking pirates running IBM like it's a stolen treasure box and they will personally enrich themselves until there's nothing left. Roadkill 2015 was the plan and everyone knew it was 100% bullshit. At this point all they can do is fire everyone who's not an executive, in the US, re incorporate in a developing nation and sell off the entire company piecemeal. IBM is a poorly run investment fund that simply buys and sells smaller companies to dig as much cash out of them as possible then tossing them away.

Paying someone to take a division off your hands? Are you fucking serious? THAT's better than simply taking that money and investing it into the division? Holy the server division just sold to Lenovo must be happy. They'll have a viable business with actual jobs whereas IBM is too busy borrowing money to buy back stock price with no revenue to pay off the debt.

Re:Bigger fuckup than John Akers

[lucabrasi999]

Ginni learned how to do this from her predecessor. Sam was the 'visionary', Ginni is just following through on his roadmap.

Re:Bigger fuckup than John Akers

[FooAtWFU]

THAT's better than simply taking that money and investing it into the division?

I don't know, that could just be throwing good money after bad. This isn't a software division, it's not even like their server hardware division, it's chipmaking. It's kind of a go-big-or-go-home game where your competitors -- well-funded types like, say, Intel -- can easily pour many billions of dollars into next-generation fabrication processes and equipment which will readily put any half-assed investment to shame. I don't think IBM's chip business has the customer base to make "go big" profitable, or any reasonable plan to acquire new customers, so "go home" makes a lot of sense here.

Now, the wisdom / folly of gutting the rest of IBM's various divisions is left as an exercise to the reader.

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[MachineShedFred]

So maybe they shouldn't have chased off their chip customers years ago by refusing to make a functioning piece of silicon that didn't require the Hoover Dam to power it, and a cooling tower to make sure it didn't melt?

And the POWER line of CPUs dies with a whimper.

Newton anyone?

[tepples]

Of course Apple switched to Intel and picked ARM for the iPhone and other iDevices, and then... well... where is PowerPC now?

Apple has been using ARM in handheld devices since the freaking Newton. It was in fact one of the first adopters of ARM.

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[TheRaven64]

ARM exists largely because of Apple. They didn't want to buy mobile chips from a competitor (Acorn), so invested in a joint venture so that Acorn would spin off their chip division into a company that would sell to both. They then ignored ARM after killing the Newton though. Many of the people working on the current ARM cores at Apple formerly worked on a PowerPC processor at PA Semi. I think, if IBM and Freescale, had been serious about selling desktop chips that Apple would have been happy to avoid a

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[unixisc]

Freescale (Motorola's) only market for the PowerPCs were Apple: they didn't usually go into RS/6000 workstations. So when Apple wanted a low power roadmap, how did Freescale think that it had any option other than to give them that? If they had followed an Intel like strategy and developed a whole spectrum of Power chips - ranging from low power chips for mobiles to multicore MIMD chips for the top of the like POWERservers, they'd still be around as a powerful competitor to Intel. Those CPUs, rather tha

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[TheRaven64]

Freescale mostly sells PowerPC chips for automotive and similar applications. They already had the low power parts, but they didn't have them at the speeds that Apple wanted. Most of their customers use their chips for engine control or entertainment systems. They also made the chips for consoles. Their biggest weakness was that Apple was the cheapest supplier of a PowerPC system that you could develop on, and they were undercut by a long way by Intel machines. This is the same problem that Alpha had:

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[unixisc]

Yeah, but w/ automotive, one wouldn't get the volumes that one would need to have fabs running that could profitably turn out quality chips, the way Intel does. That's why automotive chips are priced high - w/ the specs that they use, there is a huge fallout per wafer, which gets factored into the cost of the chips. To be profitable, Freescale would have needed to produce G4s and successor chips that Apple needed. Maybe they could have explored the multi-core strategy just like Intel did, and turn thing

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[unixisc]

So maybe they shouldn't have chased off their chip customers years ago by refusing to make a functioning piece of silicon that didn't require the Hoover Dam to power it, and a cooling tower to make sure it didn't melt?

And the POWER line of CPUs dies with a whimper.

Yeah, somehow I can't see GlobalFoundries build POWER chips. Heck, they struggled to make AMD chips, for crying out loud!

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[erikscott]

I'm still trying to work out why they're paying GlobalFoundries to take the plants. The pension argument doesn't make sense - IBM switched from "defined benefit" to "defined contribution" about ten years ago, so they can walk away on a whim now. The only factors I can think of are:

1) IBM received a decent subsidy ($600M) from the feds to run a "trusted semiconductor foundry" line, on US soil (google it - not a secret). The government does this in several markets and industries just to make sure they prop

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[Kjella]

3) Contractual obligations/customer relations, in the enterprise world people build systems they expect to last many, many years and not have the parts disappear on a whim. Which is is why Intel has launched Itaniums as late as 2012, whoever they suckered into buying it will get time to bail out. Don't underestimate the value of grudges in the enterprise, any executive who gets burned by IBM ditching it fast and dirty will be their enemy when the next big consulting/outsourcing contract rolls around.

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[tlhIngan]

This isn't a software division, it's not even like their server hardware division, it's chipmaking. It's kind of a go-big-or-go-home game where your competitors -- well-funded types like, say, Intel -- can easily pour many billions of dollars into next-generation fabrication processes and equipment which will readily put any half-assed investment to shame. I don't think IBM's chip business has the customer base to make "go big" profitable, or any reasonable plan to acquire new customers, so "go home" makes

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[cheesybagel]

Motorola and IBM were screwed by Apple more than they screwed Apple. Back when Apple opened up the Mac clones market a lot of competitors showed up which increased the demand for PowerPC chips. As a result it was profitable to sell PowerPC to the desktop back then. Once Apple killed the Mac clone business the demand for PowerPC chips fell off a cliff. Did you ever think one vendor with less than 10% of the market could sustain two chip vendors like IBM and Motorola? I would not be surprised if they sold a l

Re:Bigger fuckup than John Akers

[hendrips]

I can't speak for any of IBM's other decisions, but in this case I have to strongly disagree with you. The IBM semiconductor business has been losing money hand over fist recently. They can't compete with Samsung or TSMC on price and volume, and there's not enough interest in specialty chips or POWER to make up the slack. It costs at minimum $5 billion to build a new fab, and IBM would have to build at least one, maybe two new fabs, not to mention updating their existing fabs, in order to be competitive with the big guys.

So, IBM could spend $5 billion - $10 billion just to catch up to their competitors, and still be at a very serious risk of the division being unprofitable, or they could spend $1.3 billion knowing for certain that the bleeding will stop. I only wonder what took them so long.

Also, for what it's worth, IBM is allegedly doing this deal in part so that it can focus more money into design research. They've announced a $3 billion investment into their semiconductor research division, which they aren't getting rid of. The implication is that the manufacturing division was crowding out any other R&D spending, and that IBM can now focus on high margin ARM-style licensing instead of getting dragged further into a war with TSMC et al. that they would inevitably lose.

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[cheesybagel]

In other words their future is being a patent troll. As usual.

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[tepples]

She and her cronies are fucking pirates

With which mass copyright infringers is she having sexual contact?

Need to remove the M from IBM

[sasparillascott]

Probably need to change the name to IBC and drop the M as they are rapidly on that road to not really building/creating anything anymore - and just being another offshoring consulting firm (once they offshore the managers they could change it to Indian Business Consultants).

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[robmv]

I propose IBAR, International Business Apple Reseller

How on earth?

[gman003]

How on earth do they find "pay someone a billion and a half to take this business" to be cheaper than just shutting the entire thing down? Even if the division is losing more money than that, I think you could do better by just firing everyone and burning any physical assets to the ground. The only way I think it could be otherwise is if it costs more than $1.5 billion just to shut down the division. Unless IBM is running a nuclear reactor somewhere and I just never heard of it, that just doesn't seem plaus

Re:How on earth?

[brunes69]

The main reason is it costs A LOT of money to lay people off due to severance payments and things like having to pay out retirement benefits etc.

Re: How on earth?

[lucabrasi999]

Those chips are used in the servers IBM still sells: Mainframe & p-Series. Closing down the chips business would destroy their high margin mainframe business.

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[Duhavid]

So, once the sale is done, the new owners will have them over a barrel, and will use that to make this profitable?

They are going to pay for it one way or another. Keeping it in house keeps control.
The only advantage I would see would be that competitors to IBM might consider the chips more favorably.

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[FooAtWFU]

At a guess: the sale may come with contractual obligations -- e.g. if IBM has agreed to design and manufacture chips for a certain third party for a certain length of time.

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[edxwelch]

Obviously, they should publish the full contract, just so slashdotters can give it their seal of approvial

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[frank_adrian314159]

How on earth do they find "pay someone a billion and a half to take this business" to be cheaper than just shutting the entire thing down?

Because maybe they can't just shut it down? Perhaps they still need the chips for a while until they can migrate their hardware to other chips?

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[Junta]

Perhaps they still need the chips for a while until they can migrate their hardware to other chips?

Except they just divested themselves of the division that does hardware based on other chips. Basically they sold to GF and probably required that GF would continue fabricate POWER for some time before renegotiating in a more traditional fashion. Maybe they are hoping that nVidia or some other companies will start designing serviceable POWER architecture chips and then they can sit back, and be like ARM without actually commissioning any actual chips and also sell servers based on the platform (or Tyan st

How on earth?

[rayzat]

A couple of reasons. First as others have mentioned IBM still needs the lines. IBM's processor design is fairly integrated. It needs custom circuits which really on their fabrication technology. Their chip design process is the antithesis of fabless development. So they can't just shut off lights to the fab without crippling the Power, Mainframe, and high end storage business for years to come. The other issue is there are customers getting chips manufactured. If you shut that down there are typically very steep contract termination fees. This is really 6 year wind down with higher costs every year. The fab business is very cutthroat, you have to hit fairly high yields and have the line near full capacity or else you lose a boatload because the fixed costs are so high. They've been getting out of this business for years, especially on the low end. This is just the last step.

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[NothingWasAvailable]

Think of it as three separate businesses. A completely full 200 mm (trailing edge, but boutique or specialty) semiconductor fab in Vermont, an under-utilized 300 mm (too small to be competitive) semiconductor fab in New York, and hundreds of engineers and scientists who have consistently produced technologies that let IBM build 5.5 ghz server chips, and continue to come up with new analog and mixed signal technologies at older nodes. The 200 mm fab has multiple small unsexy chips (like antenna switches an

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[wiredlogic]

IBM manufactures ICs for the defense industry. The federal government won't let them shut it down so they're forced to offload it in this craptastic way.

Retirement Heist - Ellen E. Schultz

[Bonzoli]

Its a great book, you should read it and the light will go on. It features IBM a lot, right next to GM.

Interesting spinoff

[mu51c10rd]

As they say "when the chips are down..."

I don't see IBM lasting much longer

[ericbrow]

I just completed work for a customer who, because of a lot of legacy software, kept needing to purchase IBM hardware and operating systems. They somehow manage to make everything WAY more complicated than it needed to be, and WAY more expensive. I want to believe that their hardware was good, in my experience, IBM hardware does last a long time, and functions well. With that said, I could buy COTS hardware with Linux, and have several sets of backup hardware, for less than the cost of what IBM proposed f