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Globalfoundries Emerges as Lead Candidate to Buy IBM Chip Plants, Sources
Say -- Update
59 minutes ago - DJNF
By Spencer E. Ante, Dana Cimilluca and Dana Mattioli
Globalfoundries Inc. has emerged as the lead candidate to buy International
Business Machines Corp.'s semiconductor manufacturing operations, people
familiar with the matter said.
IBM has also held talks with chip makers Intel Corp. and Taiwan
Semiconductor Manufacturing Co., these people said. TSMC has dropped out of
the talks, the people said. Intel is still involved, but Globalfoundries
appears to have a stronger interest, these people said.
Talks between IBM and Globalfoundries are ongoing and a deal isn't imminent,
these people said. The transaction involves thorny issues, including
control of intellectual property and terms under which the ultimate buyer of
the facilities may keep manufacturing chips for IBM computers, they added.
Price is also another sticking point, with IBM initially asking for more
than $2 billion and bidders coming in north of $1 billion, the people said.
The price may fluctuate higher or lower, though, depending on structure of
the deal, said one of the people. To the extent that IBM includes chip-
intellectual property in the deal, the price could go lower, this person
said.
The situation is fluid and another bidder could ultimately prevail, one of
the people said.
A spokeswoman for TSMC said the company has studied the IBM chip plant and
that it has no current plan to add a new plant in an overseas market.
Representatives from IBM, Globalfoundries and Intel declined to comment.
A sale of the chip-manufacturing operations, if completed, would represent
IBM's most significant strategic shift since the company got out of the PC
business in 2004.
IBM has repeatedly exited low-margin businesses where it couldn't find a
competitive edge, like PCs. Chip manufacturing, by contrast, is a field
involving fundamental research and development, a longtime foundation for
IBM hardware that has also helped drive innovation in the broader
semiconductor industry.
IBM factories make computer chips for its own high-end server systems as
well as for external customers. Shedding those capital-intensive operations
could help boost IBM's profitability, and dovetail with recent moves by the
company to reduce its reliance on selling computer hardware.
IBM recently struck a deal to sell its low-end server business to Lenovo
Group Ltd. IBM still makes mainframes and high-end servers based on
internally designed chips, though sales of servers that use the Unix
operating system have been tumbling in recent quarters.
IBM wants to maintain control over as much semiconductor research and
development as possible, but Globalfoundries is also interested in gaining
more ownership of that expertise and intellectual property, said the people.
As part of the deal, Globalfoundries also wants to secure an agreement to
be IBM's main chip supplier, but IBM has concerns over whether the company
can be a reliable supplier, said the people.
"IBM wants to control what quality comes out and have the option of getting
out of the deal," said one of the people. "[Globalfoundries] thinks it's
nice to have the manufacturing if we can also get the R&D and be your
supplier."
TSMC dropped out of the talks because it only wanted the R&D operation and
wasn't interested in adding more chip-making capacity, said the people.
Over the past decade, IBM has transferred much of its chip-making R&D and
prototyping from its own facilities to the College of Nanoscale Science and
Engineering at the State University of New York in Albany. IBM and other
chip makers send engineers to the campus, which is hosting research in areas
that include development of larger semiconductor wafers to boost
manufacturing productivity.
Globalfoundries, which is based in Santa Clara, Calif., is backed by the
government of Abu Dhabi. The company was founded in 2009 from the former
manufacturing operations of Advanced Micro Devices Inc. In addition to
operating former AMD factories in Germany, Globalfoundries has built a large
factory near Albany and runs factories in Asia that were once part of
Chartered Semiconductor Manufacturing Ltd.
The company makes chips for AMD, which competes with Intel in selling chips
for personal computers. On Tuesday, AMD said it expects to pay
Globalfoundries about $1.2 billion in 2014 for work that includes making
some chips for game consoles that are now exclusively made by TSMC.
IBM's factories made chips used in the last generation of videogame consoles
from Sony Corp. and Microsoft Corp. But both companies shifted their latest
machines to chips from AMD. IBM still makes chips used in Nintendo Co.'s
Wii system.
Toni Sacconaghi, an analyst at Sanford C. Bernstein, said in a recent
interview that IBM has less of an economic rationale for its own chip
manufacturing plants as the company focuses less on servers.
IBM is also making fewer chips for external customers, giving it more of a
reason to jettison the unit, he said.
Last year, sales of IBM's chip-making unit declined about 7% to $1.46
billion. Sales of the business that provides circuit design and
manufacturing consulting services fell 38% to $215 million.
Don Clark and Lorraine Luk contributed to this article.
Write to Spencer E. Ante at s**********[email protected], Dana Cimilluca at dana.
c*******[email protected] and Dana Mattioli at d***********[email protected]
Subscribe to WSJ: http://online.wsj.com?mod=djnwires
Boom Boom Pow!
Globalfoundries Emerges as Lead Candidate to Buy IBM Chip Plants, Sources
Say -- Update
59 minutes ago - DJNF
By Spencer E. Ante, Dana Cimilluca and Dana Mattioli
Globalfoundries Inc. has emerged as the lead candidate to buy International
Business Machines Corp.'s semiconductor manufacturing operations, people
familiar with the matter said.
IBM has also held talks with chip makers Intel Corp. and Taiwan
Semiconductor Manufacturing Co., these people said. TSMC has dropped out of
the talks, the people said. Intel is still involved, but Globalfoundries
appears to have a stronger interest, these people said.
Talks between IBM and Globalfoundries are ongoing and a deal isn't imminent,
these people said. The transaction involves thorny issues, including
control of intellectual property and terms under which the ultimate buyer of
the facilities may keep manufacturing chips for IBM computers, they added.
Price is also another sticking point, with IBM initially asking for more
than $2 billion and bidders coming in north of $1 billion, the people said.
The price may fluctuate higher or lower, though, depending on structure of
the deal, said one of the people. To the extent that IBM includes chip-
intellectual property in the deal, the price could go lower, this person
said.
The situation is fluid and another bidder could ultimately prevail, one of
the people said.
A spokeswoman for TSMC said the company has studied the IBM chip plant and
that it has no current plan to add a new plant in an overseas market.
Representatives from IBM, Globalfoundries and Intel declined to comment.
A sale of the chip-manufacturing operations, if completed, would represent
IBM's most significant strategic shift since the company got out of the PC
business in 2004.
IBM has repeatedly exited low-margin businesses where it couldn't find a
competitive edge, like PCs. Chip manufacturing, by contrast, is a field
involving fundamental research and development, a longtime foundation for
IBM hardware that has also helped drive innovation in the broader
semiconductor industry.
IBM factories make computer chips for its own high-end server systems as
well as for external customers. Shedding those capital-intensive operations
could help boost IBM's profitability, and dovetail with recent moves by the
company to reduce its reliance on selling computer hardware.
IBM recently struck a deal to sell its low-end server business to Lenovo
Group Ltd. IBM still makes mainframes and high-end servers based on
internally designed chips, though sales of servers that use the Unix
operating system have been tumbling in recent quarters.
IBM wants to maintain control over as much semiconductor research and
development as possible, but Globalfoundries is also interested in gaining
more ownership of that expertise and intellectual property, said the people.
As part of the deal, Globalfoundries also wants to secure an agreement to
be IBM's main chip supplier, but IBM has concerns over whether the company
can be a reliable supplier, said the people.
"IBM wants to control what quality comes out and have the option of getting
out of the deal," said one of the people. "[Globalfoundries] thinks it's
nice to have the manufacturing if we can also get the R&D and be your
supplier."
TSMC dropped out of the talks because it only wanted the R&D operation and
wasn't interested in adding more chip-making capacity, said the people.
Over the past decade, IBM has transferred much of its chip-making R&D and
prototyping from its own facilities to the College of Nanoscale Science and
Engineering at the State University of New York in Albany. IBM and other
chip makers send engineers to the campus, which is hosting research in areas
that include development of larger semiconductor wafers to boost
manufacturing productivity.
Globalfoundries, which is based in Santa Clara, Calif., is backed by the
government of Abu Dhabi. The company was founded in 2009 from the former
manufacturing operations of Advanced Micro Devices Inc. In addition to
operating former AMD factories in Germany, Globalfoundries has built a large
factory near Albany and runs factories in Asia that were once part of
Chartered Semiconductor Manufacturing Ltd.
The company makes chips for AMD, which competes with Intel in selling chips
for personal computers. On Tuesday, AMD said it expects to pay
Globalfoundries about $1.2 billion in 2014 for work that includes making
some chips for game consoles that are now exclusively made by TSMC.
IBM's factories made chips used in the last generation of videogame consoles
from Sony Corp. and Microsoft Corp. But both companies shifted their latest
machines to chips from AMD. IBM still makes chips used in Nintendo Co.'s
Wii system.
Toni Sacconaghi, an analyst at Sanford C. Bernstein, said in a recent
interview that IBM has less of an economic rationale for its own chip
manufacturing plants as the company focuses less on servers.
IBM is also making fewer chips for external customers, giving it more of a
reason to jettison the unit, he said.
Last year, sales of IBM's chip-making unit declined about 7% to $1.46
billion. Sales of the business that provides circuit design and
manufacturing consulting services fell 38% to $215 million.
Don Clark and Lorraine Luk contributed to this article.
Write to Spencer E. Ante at s**********[email protected], Dana Cimilluca at dana.
c*******[email protected] and Dana Mattioli at d***********[email protected]
Subscribe to WSJ: http://online.wsj.com?mod=djnwires
