International Business Machines Corp. (IBM) agreed to pay Globalfoundries Inc. $1.5 billion to take an unprofitable chip-manufacturing unit off its hands, according to two people with knowledge of the matter.
IBM will also receive $200 million worth of assets, making the net value of the deal $1.3 billion, said the people who asked not to be identified because the agreement is private. The companies plan to announce the deal Monday, the people said. IBM put out a statement Sunday saying it planned to make a “major business announcement”, Bloomberg reported.
After months of on-again, off-again talks, IBM Chief Executive Officer Ginni Rometty finally struck a deal to jettison the chipmaking unit, which has been a drag on earnings. Globalfoundries, owned by an investment arm of the government of Abu Dhabi, is taking on the unit to tap the expertise of its engineers in the fundamentals of semiconductor design and manufacturing.
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 chipmaking technology and guarantee supply of chips that IBM needs for its systems, like mainframe computers and its Watson data-analytics technology.
IBM will pay Globalfoundries the $1.5 billion over three years, the people said.
Announcement
In Sunday’s statement, IBM also said it planned to announce third-quarter results Monday at 7 am New York time, instead of after US markets close as planned.
Analysts expect IBM to report that third-quarter earnings, excluding some items, rose to $4.32 a share, according to estimates compiled by Bloomberg. That’s with revenue projected to fall for a 10th straight quarter, according to the average of analysts’ estimates.
The results are important as Rometty tries to reach a target of $18 a share in adjusted earnings this year, even as the company tries to keep up with a shift across the industry to cloud computing. It’s all part of a five-year plan to bolster profit by 2015.
IBM’s semiconductors, which include the PowerPC lineup, have been used in personal computers, game machines and other equipment. Still, Intel Corp.’s dominance in the processor market has left Armonk, New York-based IBM with less of a role in the chip industry.
