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WSJ: Globalfoundries the top candidate to buy IBM's chip foundry ops

  • Private Globalfoundries is "the lead candidate" to acquire IBM's (IBM -0.4%) struggling chip manufacturing/foundry ops, sources tell the WSJ. Market leader TSMC (TSM -0.5%) is said to have dropped out of talks, and though Intel is said to be involved, Globalfoundries is showing more interest.
  • Sources add a deal isn't imminent, and that price remains an issue: IBM originally wanted $2B+ for the business, whose sales tumbled 33% Y/Y in Q4 (evidence of share loss) and is in the midst of seeing layoffs, but initial bids have only been north of $1B.
  • The business was first reported to be on the block in early February. Bernstein has estimated it had 2013 revenue of $1.75B, and an op. loss of $130M.
  • Though presenting integration challenges, acquiring IBM's chip unit would give Globalfoundries more scale as it battles against TSMC, which is estimated to have nearly 50% of the foundry market and claims a long list of blue-chip clients.
  • TSMC shares slipped yesterday after Globalfoundries announced a wafer supply deal with ex-parent AMD that includes GPU and console processor manufacturing (thus far handled by TSMC). Nonetheless, Digitimes has reported TSMC's capacity is booked through the end of Q3 thanks to strong mobile/PC chip demand.
Comments (6)
  • BAHAMAS1
    , contributor
    Comments (2629) | Send Message
     
    Continue your positive morph and get rid of it and move on IBM.
    3 Apr 2014, 05:53 PM Reply Like
  • jhesr
    , contributor
    Comments (498) | Send Message
     
    I hope this goes through. Fabs are too expensive to upgrade. Much better to go fabless like most companies have done. Let the dedicated foundry companies make the chips.
    4 Apr 2014, 02:48 AM Reply Like
  • OFA7
    , contributor
    Comment (1) | Send Message
     
    If the foundary business is so bad then why does TSMC do so well - labor cost is not an issue. I suspect IBM struggles because it has an outsized overhead structure, but the grass is always greener doing something else which supports (temporarily) the overhead structure. It takes a highly disciplined organization to remain focused on its core strength in manufacturing.
    5 Apr 2014, 10:36 AM Reply Like
  • jhesr
    , contributor
    Comments (498) | Send Message
     
    IBM does a little bit of foundry work for other people but most of their manufacturing is done for their own chips. Anyway, it looks to me like IBM wants to follow the ARMH strategy when it comes to the chip business, and get out of the manufacturing part of it.

     

    Makes sense to me. ARM Holdings has done quote well with their business model.
    7 Apr 2014, 05:36 PM Reply Like
  • BAHAMAS1
    , contributor
    Comments (2629) | Send Message
     
    It also take a "highly disciplined organization" to know when to move on.

     

    IBM has proven their success of this strategy over their 100+year old history.
    5 Apr 2014, 10:46 AM Reply Like
  • Lowcarb
    , contributor
    Comments (50) | Send Message
     
    IBM's chip business struggles for several reasons:

     

    1) IBM's chip fabs are small. You need to amortize the development costs of a chip technology over a lot of chips. IBM just doesn't have the scale to do that. Being big enough to make a profit requires a bigger investment (in a direction they don't want to go) than IBM wants to make

     

    2) IBM's chip fabs provide white glove, red carpet, gold plated, diamond encrusted .. (get the point) service to the mainframe division. This is a level of service that the chip fabs are not properly compensated for so they look bad (on paper). The mainframe groups reap the rewards for being able to get special modifications and priority that they could never get (or afford if it even was available ) from a foundry. The mainframe designers at IBM will have to learn a new way of working when they can't get their contract manufacturer of chips to drop everything to rush a last minute change to them.
    5 Apr 2014, 05:09 PM Reply Like
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