GlobalFoundries – lead candidate to get IBM semiconductor ops

GlobalFoundries, the world’s second largest contract maker of semiconductors, seems to be the leading candidate that can get IBM Corp.’s chip manufacturing operations, a media report claims. The deal has not been finalised yet and the talks are ongoing, but chances are rather high that Abu Dhabi-backed GlobalFoundries will get a piece of IBM.

IBM has been considering to sell its chip manufacturing business for many years now, but has not done this due to a number of various concerns. Nonetheless, as chip-making operations are becoming less lucrative in general, the company started to look for a buyer for its semiconductor manufacturing business (which consists of a rather old 200mm fab in Burlington, Vermont, and an advanced 300mm facility in East Fishkill, New York) back in February.

According to the Wall Street Journal, IBM held talks with Intel Corp., GlobalFoundries and Taiwan Semiconductor Manufacturing Co. over potential transaction. There are no reports whether IBM also negotiated with Samsung Electronics and other companies with deep pockets regarding its fabs.

While Intel is still involved in the talks, Globalfoundries appears to have a stronger interest, according to the WSJ. There are three key concerns that IBM has: it wants to retain a lot of chip- and chip manufacturing-related intellectual property, it wants the new owner to continue producing IBM’s processors (possibly, on special terms) and it wants $2 billion for its fabs. The bidders reportedly want to pay over $1 billion. The final price will be determined by the combination of the terms of the deal (patents, terms of manufacturing, etc.).

According to IC Insights, a semiconductor market tracking firm, IBM is the 11th largest contract maker of chips. Last year it earned $485 million from operations, a 12 per cent higher than in the prior year. The world’s largest contract maker of semiconductors – Taiwan Semiconductor Manufacturing Co. – earned $19.85 billion last year, whereas its closest competitors received around $4 billion in revenue in 2013. Market analysts have long said that IBM’s semiconductor operations are not profitable for the Big Blue. IBM has a history of getting rid of unprofitable divisions.

The company, which will acquire IBM chip production biz, will get not only fabs and some patents, but also lucrative clients that IBM has. Those customers can pay fortunes for chips made using rather simplistic process technologies. But those clients also need advanced chips and therefore may prefer one supplier for their whole range of chips.

IBM, Intel, Globalfoundries and Samsung did not comment on the news-story.

KitGuru Says: It looks like this time IBM will finally sell its semiconductor manufacturing business. The main question is to whom? GlobalFoundries and Intel are interested in IP and customers. But what about Samsung? It may want not only clients and patents, but also factories, which means that it is eager to pay more than its rivals.

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