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IBM Dumps Chip Division, Reports Weak Quarterly Earnings

IBM announced today that it will be paying $1.5 billion to semiconductor manufacturer Globalfoundries to take over its struggling chip business.

IBM said the move was made to better position the company in the coming years. "The Agreement, once closed, enables IBM to further focus on fundamental semiconductor research and the development of future cloud, mobile, big data analytics, and secure transaction-optimized systems," said the company in a press release.

The $1.5 billion paid to Globalfoundries will also come with the remainder of a $3 billion investment over five years IBM promised towards semiconductor tech. Along with the payout, Globalfoundries will receive thousands of IBM patents and will operate IBM's previous semiconductor manufacturing IBM plants located in  New York and Vermont.

Globalfoundries, which was founded in 2009, made news in January when it announced the appointment of former Motorola Mobility CEO Sanjay Kumar Jha to its CEO position. According to a Bloomberg report, Jha had spent most of his time at the company finalizing this deal, and Globalfoundries initially sought $2 billion from IBM to offset the chip division's losses.

The announcement comes coupled with a weak IBM financial report for the third quarter. The company reported revenue of $2.4 billion for the quarter -- a decline from $4.1 billion earned during the same period last year.

"We are disappointed in our performance," said Ginni Rometty, IBM's CEO, president and chairman, in a released statement. "We saw a marked slowdown in September in client buying behavior, and our results also point to the unprecedented pace of change in our industry."

Along with coming in lower than last year's earnings, shares for IBM are down 40 cents compared to last year and currently sit at $3.68 per share.

This is the second major cut IBM has made this year to its overall business. In January the company sold its X86 server business to hardware manufacturer Lenovo for $2.3 billion.  Today's announced takeover is expected to be finalized sometime in 2015.

About the Author

Chris Paoli is the site producer for Redmondmag.com and MCPmag.com.

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