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Bloomberg: IBM/Globalfoundries talks break down over price

  • Bloomberg reports IBM's (IBM -0.5%) talks to unload its struggling chip manufacturing unit to Globalfoundries have ended over differences on price.
  • The news service reported in June IBM and Globalfoundries were close to a deal, while adding (citing a source) Big Blue's chip unit has been losing as much as $1.5B/year. Before that, the WSJ reported IBM originally wanted $2B+ for the business, but had seen initial bids closer to $1B.
  • The unit's sales fell 18% Y/Y in Q2 amid ongoing share losses to TSMC and other foundry rivals. They fell 16% in Q1, and 33% in Q4.
  • Bloomberg states IBM had become interested in a JV arrangement that would allow it to maintain control of chip design and IP development (while ridding itself of manufacturing). Two weeks ago, IBM promised to spend $3B over the next 5 years on advanced chip R&D.
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Comments (18)
  • NLTInvestor
    , contributor
    Comments (352) | Send Message
     
    didn't think it made sense to sell the chip manufacturing unit with a 3B R&D budget for chips
    25 Jul 2014, 06:02 PM Reply Like
  • ephud
    , contributor
    Comments (2770) | Send Message
     
    IBM's manufacturing infrastructure is old and they're not producing enough to justify their existence. Assuming IBM can find a suc... I mean a willing buyer, what is their reason for further development of new process technology when they wouldn't have anywhere to use it? Without IBM licensing new process technology, where is Global Foundries going to get their next generation followon processes? It's going to end up being Intel, TSMC and Samsung.
    25 Jul 2014, 07:08 PM Reply Like
  • NLTInvestor
    , contributor
    Comments (352) | Send Message
     
    I was actually confused on why they wanted to dedicate 3B to a part of the company that was getting siphoned off? thoughts?
    25 Jul 2014, 07:10 PM Reply Like
  • ephud
    , contributor
    Comments (2770) | Send Message
     
    NLTInvestor

     

    IBM licenses process technology to Global Foundries, Samsung and UMC. They've been called IBM's "Fab Club". There has long been speculation that IBM would stop funding new process development leaving the Fab Club to fend for themselves. Samsung could probably do it on their own but GLF and UMC would really be between a rock and a hard place. Currently, only Intel and TSMC develop their own process completely internally. It is an arms race very much like the US vrs USSR of years ago. Independent foundries are finding it nearly impossible to afford leading edge process technology and if IBM gets out of the business the noose just gets tighter.

     

    Samsung
    25 Jul 2014, 07:24 PM Reply Like
  • NLTInvestor
    , contributor
    Comments (352) | Send Message
     
    Got it thanks!
    25 Jul 2014, 07:34 PM Reply Like
  • Justin Jaynes
    , contributor
    Comments (3202) | Send Message
     
    ephud - is this (potentially) why GloFo licensed 14nm from Sammy?
    25 Jul 2014, 10:27 PM Reply Like
  • ephud
    , contributor
    Comments (2770) | Send Message
     
    Justin

     

    Very likely.
    26 Jul 2014, 12:50 AM Reply Like
  • Poug12603
    , contributor
    Comment (1) | Send Message
     
    IBM will out source all product of production to who ever and will hold proprietary right for their hardware. leaning their over all budget while focusing upon technology improvements, service and software development. There is no need for the East Fishkill,NY plant too old and costly.
    25 Jul 2014, 09:56 PM Reply Like
  • michael a.
    , contributor
    Comments (8) | Send Message
     
    The 300 mm Fab is now fully loaded , with P8 demand rising, and the next Z chip being readied for 2015 GA. At the same time, many mid-level execs and engineers leaving the company to move to GF or elsewhere. The Fab has all of the newest ASML scanners and process equipment to do process node through 14 nm. So it is not as antiquated as some may think. Could be a blessing in disguise that the deal fell through. IBM must maintain some level of control of a Fab to stay leading edge and do their future development work(3b investment) and guarantee a supply of chips to STG. So a JV always seemed to make the most sense. But losing key talent after letting the world know the division was on the block certainly does not help them going forward. Chalk up another blunder on the part of Rometty and co....
    25 Jul 2014, 09:56 PM Reply Like
  • ephud
    , contributor
    Comments (2770) | Send Message
     
    michael a

     

    If your read the Bloomberg link above you'll see GLF thinks the fabs are too old:

     

    "Globalfoundries, which has its own plant in New York state, had placed little or no value on IBM’s factories because they are too old, the person said"

     

    And if the fabs are full as you say, why are they losing money?
    25 Jul 2014, 10:16 PM Reply Like
  • DanoX
    , contributor
    Comments (2855) | Send Message
     
    IBM getting weaker by the day.
    25 Jul 2014, 11:13 PM Reply Like
  • alpine
    , contributor
    Comments (1464) | Send Message
     
    In response to a recent article on IBM's prospects, I commented:

     

    I'd admit to not following IBM much in semicon design, but how would you summarise Power8's advantages vs Intel's latest chips?
    18 Jul, 11:04 AMReply! Report AbuseLike0

     

    And the response came back as follows:

     

    Primarily in performance:
    SAP Sales & Distribution 2-Tier ERP 6 Benchmarks
    IBM Power System S824 using DB2 10.5 vs. Competition
    Over 2 times better 24 core performance than nearest Intel competitive
    results.
    Up to 2 times greater performance than previous Power generation.

     

    This response surprised me, as I feel that the X86 eco-system's computing power, with the likes of Microsoft, Intel, Oracle, HP, Lenovo, SMCI, etc etc now have computing platforms that have beaten the dust of IBM and all of its semiconductor technology, incl. both is manufacturing as well as process. Does anyone have a view as to how it is these days, Intel vs IBM?
    26 Jul 2014, 04:18 AM Reply Like
  • michael a.
    , contributor
    Comments (8) | Send Message
     
    First and foremost, the Fab exists to fulfill IBM internal demand and to develop future tech for both IBM, and up til now the partners. So through 14 nm that can be done in EF since the equip is already installed. 10 nm and the future nodes are developed in Albany. The question is, where will 10 nm and lower be Fab'd, and where will they get their wafers once 450 nm comes , especially if GF deal never comes to pass ? I'd say in all cases, better to have a JV type agreement because it is tough to really do development work without some control of a Fab , maskhouse, etc. The IBM fab is small, and is running 90,65, 45, 32, 22, 14 nm all in same Fab..so it is a production+ development Fab. I think they are losing money because of things like the loss of the game chips to AMD that used to buttress their outside revenue and fill their fabs. Much of the time those actual demands were not done internally at an IBM fab , but at "partner" fabs like Chartered , now GF, with IBM receiving a cut. So if it is indeed fully loaded now as we've heard , that is a sign that internal demand may be picking up which is a good thing for them, also for all I know, may be a short-term blip based on where they are in cycle P series just started shipping , with Z about to next year. No doubt they will continue investigating future sale and or JV since seems like they are determined to unload it.
    26 Jul 2014, 10:30 AM Reply Like
  • Just Some Guy
    , contributor
    Comments (1156) | Send Message
     
    I thought IBM loudly announced about four years ago that all non-customer facing tech jobs were moving offshore. Did that not include these fabs and associated R&D? Or if it did - then I think the question answers itself, the New York location is becoming impractical for any number of reasons.
    26 Jul 2014, 11:33 PM Reply Like
  • michael a.
    , contributor
    Comments (8) | Send Message
     
    Regardless of what happens with the Fabs, there will probably be a decent amount of Semi R&D jobs left in New York State at TJ Watson and Albany.
    27 Jul 2014, 01:24 PM Reply Like
  • ephud
    , contributor
    Comments (2770) | Send Message
     
    michael a.

     

    If IBM dumps it's manufacturing capacity, why is the purpose of the semi R&D?
    27 Jul 2014, 02:27 PM Reply Like
  • David Muncier
    , contributor
    Comments (748) | Send Message
     
    @Ephud,
    Two reasons:
    - To do much of the required research for whichever foundries end up manufacturing chips for IBM at 10nm and beyond. IBM will undoubtedly have special needs like eDRAM. IBM Research and Albany nano tech are still at the forefront of lithography, materials, and directed self-assembly, even if they do little production.
    - To monetize research via licensing and technology services.
    28 Jul 2014, 03:58 AM Reply Like
  • FAU4U
    , contributor
    Comments (14) | Send Message
     
    AMZN has an important problem, it does not know how to make Profits. I hear lots of "analysts" speak of Revenues, but they don't talk about Expenses, and resulting Profits. AMZN has been trading from 400x to over 700x earnings which is absurd. Jeff Bezos is a terrific Promoter but not avery good CEO, in my humble opinion.

     

    Jeff somehow has convinced "WallStreet" that AMZN is a "good investment." Sooner or later, likely sooner, the Amazon BUBBLE will break and AMZN will collapse on its own weight. Valuing AMZN at 30x earnings which even at this level is way too high for an enterprise that has not made any reasonable profits for many years, would be trading at $15/share 5 months ago. IMHO, anyone buying AMZN at present day inflated values is like " a Lawyer representing himself... as he has a Fool for a Client."

     

    Conversely, AAPL has a cadre of critics that slaughter Apple when it does not reach the "Analysts" whether or not the results are favorable for an investor. AAPl is sitting on 160 $Billion in retained earnings and earns are $6.20/share and trades at 15.4x earnings.

     

    AAPL closed Friday 8/1/2014 at about $96.13/share. If AAPL traded at 30x earnings it would be trading at $186/share stock, yet AMZN who has no earnings, trades at over $300/share; AAPL trading at 15x earnings is one of the main reasons AAPL's board decided to buy back $50Billion of its own shares. When Apple Announces in September and thereafter delivers its iPhone 6 and iPhone Air, Apple's earnings will POP and make investors VERY happy.

     

    AMZN would have to be earning $20/share to be trading at what AAPL is currently trading at... Lots of Luck with that... (Jim.Wilson is not an investment banker nor presently have positions in AMZN or AAPL)

     

    PS: One more thing. I love to use Amazon for buy all sorts of products. It is an amazing retail enterprise. So the utility and concept of Internet Retailing is very appealing to millions of folks and businesses, self included. However, Amazon most focus on Earnings and Net Profits, and not being the largest retailer that looses money for the sake of being the "biggest" at some measure.
    3 Aug 2014, 09:58 AM Reply Like
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