Globalfoundries confirmed that it's taking over the loss-making chip manufacturing division as well as chip manufacturing related IP from IBM. Under the deal, Big Blue will pay a cash consideration of $1.5 billion to GlobalFoundries over the next three years. The cash consideration will be adjusted by the amount of working capital which is estimated to be $200 million.
GlobalFoundries will become IBM's exclusive server processor manufacturer for the next 10 years. Basically, GlobalFoundries is getting the facilities and expertise for free and gets a lump sum of cash to upgrade and operate them as IBM needs a secure partner to manufacture its Power processors.
According to previous reports, IBM sought to get rid of its chip manufacturing unit because it accounted for less than 2 percent of its yearly revenue and suffered losses of up to $1.5 billion a year.
IBM and GLOBALFOUNDRIES today announced that they have signed a Definitive Agreement under which GLOBALFOUNDRIES plans to acquire IBM's global commercial semiconductor technology business, including intellectual property, world-class technologists and technologies related to IBM Microelectronics, subject to completion of applicable regulatory reviews. GLOBALFOUNDRIES will also become IBM's exclusive server processor semiconductor technology provider for 22 nanometer (nm), 14 nm and 10 nm semiconductors for the next 10 years.
The Agreement, once closed, enables IBM to further focus on fundamental semiconductor research and the development of future cloud, mobile, big data analytics, and secure transaction-optimized systems. IBM continues its previously announced $3 billion investment over five years for semiconductor technology research to lead in the next generation of computing. GLOBALFOUNDRIES will have primary access to the research that results from this investment through joint collaboration at the Colleges of Nanoscale Science and Engineering (CNSE), SUNY Polytechnic Institute, in Albany, N.Y.
As part of this Agreement, GLOBALFOUNDRIES will gain substantial intellectual property including thousands of patents, making GLOBALFOUNDRIES the holder of one of the largest semiconductor patent portfolios in the world. GLOBALFOUNDRIES also will benefit from an influx of one of the best technical teams in the semiconductor industry, which will solidify its path to advanced process geometries at 10 nm and below. Additionally, the acquisition opens up business opportunities in industry-leading radio frequency (RF) and specialty technologies and ASIC design capabilities.
"This acquisition solidifies GLOBALFOUNDRIES' leadership position in semiconductor technology development and manufacturing," said Dr. Sanjay Jha, CEO, GLOBALFOUNDRIES. "We can now offer our customers a broader range of differentiated leading-edge 3D transistor and RF technologies, and we will also improve our design ecosystem to accelerate time-to-revenue for our customers. This acquisition further strengthens advanced manufacturing in the United States, and builds on established relationships in New York and Vermont."
"The Agreement expands our longstanding collaboration, which began when GLOBALFOUNDRIES was created in 2009, and reflects our confidence in GLOBALFOUNDRIES' capability," said IBM Senior Vice President & Director of Research Dr. John E. Kelly III. "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."
This acquisition bolsters semiconductor manufacturing and technology development in the United States. GLOBALFOUNDRIES has robust capital expenditure plans of approximately $10 billion in 2014-2015, with the majority being invested in New York. GLOBALFOUNDRIES has created nearly 3,000 direct jobs in New York and thousands more indirect jobs in the United States since 2009.
GLOBALFOUNDRIES will acquire and operate existing IBM semiconductor manufacturing operations and facilities in East Fishkill, New York and Essex Junction, Vermont, adding capacity to serve its customers and thousands of jobs to GLOBALFOUNDRIES' workforce. GLOBALFOUNDRIES plans to provide employment opportunities for substantially all IBM employees at the two facilities who are part of the transferred businesses, except for a team of semiconductor server group employees who will remain with IBM. After the close of this transaction, GLOBALFOUNDRIES will be the largest semiconductor technology manufacturing employer in the Northeast.
GLOBALFOUNDRIES will also acquire IBM's commercial microelectronics business, which includes ASIC and specialty foundry, manufacturing and related operations and sales. GLOBALFOUNDRIES plans to invest to grow these businesses.
IBM will reflect a pre-tax charge of $4.7 billion in its financial results for the third quarter of 2014, which includes an asset impairment, estimated costs to sell the IBM microelectronics business, and cash consideration to GLOBALFOUNDRIES. Cash consideration of $1.5 billion is expected to be paid to GLOBALFOUNDRIES by IBM over the next three years. The cash consideration will be adjusted by the amount of working capital which is estimated to be $200 million.
The transaction is subject to the satisfaction of regulatory requirements and customary closing conditions.