IBM has agreed to pay $1.5bn as part of a deal to shed its loss-making chip manufacturing arm and avoid the billions of dollars in capital spending it was facing to upgrade its manufacturing technology.
The deal with GlobalFoundries, which is owned by an Abu Dhabi sovereign wealth fund, is poised to be announced in the US early on Monday, according to a person familiar with the agreement.
IBM has been searching for someone to take on its chip manufacturing arm for much of the year but has been hampered by the small number of players left in the consolidating business, giving it little bargaining power.
The huge cost of upgrading equipment and manufacturing processes for each new generation of chips, which involves shrinking the elements in a semiconductor to ever-smaller sizes, has already forced others to quit.
GlobalFoundries has already emerged as the second biggest in the foundry business after Taiwan’s TSMC, making chips for other companies.
It was formed with the spin-off of AMD’s manufacturing arm in 2009 and expanded with the purchase of Chartered Semiconductor a year later.
Negotiations over the deal were hampered in recent months by disagreement over how much IBM should pay GlobalFoundries to take on the division, as well as who should hold the intellectual property and research tied to the chip business.
IBM has sought to keep control of the design of its chips, which it considers important for future generations of its computers, while trying to shed the capital-intensive manufacturing facilities.
It said earlier this year that it would invest $3bn in chip research and design over a number of years, in an attempt to head off suggestions it was backing out of a field that has represented a core part of its technology in recent decades.
Under the deal, GlobalFoundries will take over IBM’s main manufacturing plant in Fishkill, New York, as well as a smaller plant in Vermont, according to the person familiar with the plan. It will also assume about 5,000 IBM employees. The two have also signed a 10-year supply contract, this person said.
Both companies refused late on Sunday to comment on the news, which was first reported by Bloomberg.
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