IBM Corp. is reportedly paying Globalfoundries $1.5 billion for it to take over its unprofitable chip unit, in order to prevent additional losses, according to the Wall Street Journal.
The semiconductor company released an advisory on Sunday that it would declare a "major business announcement" on Monday. The payment will be made over a span of three years, and both companies had been in talks for months until IBM Chief Executive Officer Ginni Rometty swayed the other party to acquire the unit, Bloomberg reported.
Globalfoundries will acquire IBM's manufacturing plant in New York and Vermont, as well as the 5,000 employees, according to Financial Times.
It might sound odd that IBM is paying Globalfoundries to take the unit off of its plate. VLSI Research analyst G. Dan Hutcheson told WSJ that the payment might be for the operations cost of the chips that IBM needs. Apparently, IBM still wants to use its technology, instead of getting supplies from other makers. So now, Globalfoundries will become IBM's specialized chip supplier for products, including the Watson computer, for the next 10 years.
IBM decided to let go of the chip unit since it only accounts for less than two percent of the company's revenue and has continuously declined for the past several years. After the division had reported a $1.5 billion loss last year, the company started looking for buyers. The company had discussions with Intel Corp. and Taiwan Semiconductor Manufacturing Co., but both offered less than $1 billion. IBM was expecting more than $2 billion.
Both spokespersons for IBM and Globalfoundries refused to comment. A conference call is scheduled for 8 a.m. New York time after the third-quarter earnings report.
