Intel Corp (INTC)

[Professor MD]

IBM fails to give computer chip sites away

LARRY RULISON
THE TIMES UNION
MALTA, N.Y. —

IBM is so desperate to unload its computer-chip manufacturing unit that the company was offering GlobalFoundries $1 billion to take it off its hands, according to a report by Bloomberg News.

That narrative runs counter to previous reports that IBM had put the unit up for sale and that GlobalFoundries was negotiating to buy the division, which like other hardware business units has faced the chopping block, in an attempt by IBM to boost the company’s earnings.

The Times Union and other news outlets reported last month that the deal between IBM and GlobalFoundries had collapsed, apparently over price. Many thought that GlobalFoundries wouldn’t offer IBM its asking price of $2 billion.

However, according to Bloomberg, it was IBM that rejected demands by GlobalFoundries that it be paid $2 billion to pick up the IBM manufacturing unit.

While the idea of paying someone for a once-lucrative manufacturing business may seem counter-intuitive, it makes sense if IBM and GlobalFoundries were considering structuring the deal as a joint venture where GlobalFoundries would make chips for IBM, while IBM would retain some or all of the patents and intellectual property.

Now that the deal is dead, the real question is what will happen to IBM’s chip factories in East Fishkill in Dutchess County, Burlington, Vt., and outside Montreal. The Vermont factory is decades-old and also has an outdated manufacturing process that uses 8-inch silicon wafers instead of today’s standard of 12-inch wafers. The East Fishkill fab is only about 12 years old, but by semiconductor industry standards, that also is outdated.

The Montreal facility, however, could potentially be extremely valuable to GlobalFoundries since it specializes in chip “packaging,” where many of today’s advancements are occurring with 3-D chip stacking.

Computer chip making is so expensive that chip companies will shut down a factory the day it starts losing money. Just a second of downtime at a chip factory, from an electrical outage for example, can cost a company millions of dollars.

When at full capacity, operating a chip factory is like printing money. But once margins slide and production dips, owners lose money rapidly, which is why the facilities run 24 hours a day, 365 days a year.

Neither IBM nor GlobalFoundries responded immediately to a request for comment, although neither side has publicly acknowledged talks even existed.

IBM CEO Ginni Rometty had been hoping to get rid of the chip manufacturing business to help her achieve IBM’s goal of reaching profits of $20 per share by 2015, Bloomberg wrote.

‘’With the talks breaking down, the chip-manufacturing business will continue to weigh on IBM’s profit,” Bloomberg reporters Alex Barinka and Ian King wrote Aug. 5. “The unit loses as much as $1.5 billion a year, a person familiar with the matter said.”
________________________________________

http://www.timesargus.com/apps/pbcs.dll/article?AID=/20140809/BUSINESS03/708099979/0/RSS07?template=printart