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.

Armonk, New York based International Business Machines Corp. is the world's largest provider of computer services, with over 433,000 employees and operations spanning the globe.
The company's main business comes from the manufacture of computer hardware and software, infrastructure and hosting and consulting services for a variety of advanced technologies.

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.

Other News About IBM
Shumlin: IBM plant to stay in Vermont under sale
Vermont governor says that plant in Essex Junction will remain open after the deal.
IBM stumble puts markets in negative mood
News from IBM could put pressure on the stock market today.

Other Stocks in the News
Sears plans to raise more cash via rights offering
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NCR cuts outlook, citing weak retail industry
Shares are off almost nine percent in this morning's premarket.

Published on Oct 20, 2014
By Jay Hawk
Jay Hawk
Jay Hawk enjoyed a 12-year professional financial markets career incorporating extensive first hand futures and options experience obtained by trading in the stock, commodity and forex markets on U.S. exchanges. Since retiring as a full-time financial market professional, he has been actively trading stock, commodities, forex and options for his own account and managing funds for others, as well as writing financial market commentary and educational articles.

Copyrighted 2020. Content published with author's permission.

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