IBM’s (IBM) Earnings Miss, to Pay GlobalFoundries $1.5B for Chip Division
Shares of International Business Machines Corp. (IBM) were trading down -12.30 or -6.76 percent to $169.75 per share in pre-market trading this morning, after the company announced it would pay $1.5 billion to GlobalFoundries to get rid of the company's losing chip division. IBM stock closed at $182.05, up +2.21 or +1.23 percent in Friday's regular trading session.
Santa Clara, California based GlobalFoundries was originally the manufacturing and divestiture division of Advanced Micro Devices (AMD) and was created through the acquisition of Charter Semiconductor in March of 2009. The company is owned by the Emirate of Abu Dhabi through its subsidiary Advanced Technology Investment Company or ATIC and produces silicon wafers at plants in Germany, Singapore, Malta and Saratoga County, New York.
IBM agreed to pay the $1.5 billion over the next three years to GlobalFoundries. The deal will also have IBM purchase power processing chips from GlobalFoundries for the next ten years in exchange for access to IBM's intellectual property. GlobalFoundries will receive thousands of patents making the company the largest semiconductor patent holder in the world.
GlobalFoundries will acquire and run IBM's existing semiconductor manufacturing plant and facilities in East Fiskhill, New York and Essex Junction, Vermont adding thousands of jobs to GlobalFoundries workforce. GlobalFoundries has plans to spend $10 billion in 2014-2015 to expand operations in the United States, creating 3,000 direct jobs in New York along with thousands of indirect jobs.
IBM Senior Vice President & Director of Research Dr. John E. Kelly III said "The Agreement expands our longstanding collaboration, which began when GlobalFoundries was created in 2009, and reflects our confidence in GlobalFoundries' capability," He continued saying, "This acquisition enables IBM to focus on fundamental semiconductor and material science research, development capabilities and expertise in high-value systems, with GlobalFoundries' leadership in advanced technology manufacturing at scale and commitment to delivering future semiconductor technologies. We are grateful for the leadership and investments by the states of New York and Vermont in supporting the semiconductor industry."
IBM had been impeded from finalizing the deal over disagreement over how much the company would pay GlobalFoundries, as well as who would get the intellectual property and research related to its chip business. IBM originally intended to keep control of its chip designs and try to rid itself of the chip manufacturing facilities. IBM said that it will continue to invest $3 billion in chip research, which the company announced earlier this year.
IBM took a pre-tax charge of $4.7 billion related to the deal when it released third quarter earnings early today. With the large charge from the chip deal, IBM reported net income of $18 million or $0.02 per share on a four percent drop in quarterly revenue. The charge includes the depreciation on the value of the assets and a $1.5 billion cash payment to GlobalFoundries.
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