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GlobalFoundries Gets $1.5B to Take Over IBM's Processor Business
The reflection of Roland Germann, manager, Nanotechnology Center Operations at IBM Research – Zurich in the clean room with a silicon wafer. (Photo by Michael Lowry, courtesy of IBM)

GlobalFoundries Gets $1.5B to Take Over IBM's Processor Business

Semiconductor company to become IBM's exclusive server chip supplier for 10 years

IBM will pay GlobalFoundries $1.5 billion cash over the next three years as part of the Silicon Valley-based semiconductor company's takeover of its processor manufacturing business, which reportedly has been losing money. IBM said on Monday it will continue its processor R&D activity, including a recently announced major investment program in this area, and GlobalFoundries will have access to results of that research.

GlobalFoundries, headquartered in Santa Clara, California, gets thousands of patents and semiconductor manufacturing operations and facilities in East Fishkill, New York and Essex Junction, Vermont. The company will also be the exclusive supplier of server processors for IBM for the next decade.

This is the second major divestiture IBM has done this year as it attempts to hit its projected earnings per share goals and reverse the trend of continuously declining revenue. It has sold its x86 server business, and now no longer wants to be in the processor making business.

In July, IBM announced a $3 billion investment in processor R&D, and GlobalFoundries will have access to the program's results through its and IBM's collaboration with Colleges of Nanoscale Science and Engineering at the SUNY Polytechnic Institute in Albany, New York.

IBM has made no secret of its intent to use its Power business to eat into Intel’s share of the chip market. Today, it licenses the architecture to others through the OpenPower Foundation.

But trying to eat Intel's lunch is a tough job. Intel is ahead of IBM in process technology and spends $10 billion a year on R&D, according to an Intel spokesperson. Big Blue’s $3-billion investment is going to be spent over the course of five years.

IBM has continued to release new models of its Power Systems servers, launching the latest ones, based on its Power8 processors, in April. It has positioned the chips and the servers for high-octane workloads, such as big data, high performance computing and databases.

The company announced a big Power8 customer win last week, saying that French hosting giant OVH has decided to build a new big data cloud infrastructure service, called RunAbove, on Power Systems servers.

IBM has been promising its shareholders $18 in earnings per share for 2014. Its 2013 EPS was $16.28, and divesting money-losing businesses appears to be one way its senior management is working toward its 2014 projections.

In September, IBM closed the sale of its commodity x86 server business to Lenovo, making the Chinese hardware company the biggest x86 server supplier in China and third biggest in the world.

IBM has been shopping the chip manufacturing business around since last year, according to a Bloomberg report that cited anonymous sources.

Software was the company’s only business segment to show some revenue growth in 2013. Revenues of the other four segments were either flat year over year or shrunk, and systems and technology, the hardware segment reported by far the biggest drop in revenue: 19%.

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