IBM to pay GlobalFoundries $1.5bn to take on loss-making microchip business

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IBM has agreed to pay Abu Dhabi-owned firm GlobalFoundries $1.5bn (£930m) to take its unprofitable chip-making business off its hands, according to US media.

The US tech firm is expected to announce the deal on Monday when it publishes its third-quarter results at 7am, New York time. Two people with knowledge of the deal told Bloomberg that IBM will pay GlobalFoundries the sum over three years and will receive $200m in assets, making the net value of the deal $1.3bn.

IBM said it was planning to make a major business announcement on Monday, but has not commented further.

The company, which is based in New York, made pioneering strides in semi-conductor technology, but its microelectronics division has struggled in recent years, as each generation of microchips requires costly upgrades to plants and equipment. High costs have forced many players out of the market, meaning IBM found few buyers when it first tried to sell its unprofitable chip-making business last year.

IBM had initially hoped to sell the loss-making business for $2m, according to the Wall Street Journal, but bids were coming in at around half that level. Analysts expressed surprise that IBM was paying GlobalFoundries rather than the other way round, but suggested it may reflect the cost of adapting IBM factories to make specialised chips.

The parent company of GlobalFoundries, which manufactures chips to order for other companies, is a technology investment fund wholly owned by the government of Abu Dhabi. GlobalFoundries has headquarters in California’s Silicon Valley, as well as offices and plants in New York and Austin.

The firm is said to be more interested in acquiring IBM’s engineers and intellectual property than the factories.

Powered by Guardian.co.ukThis article was written by Jennifer Rankin, for The Guardian on Monday 20th October 2014 10.37 Europe/London

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