IBM to pay Globalfoundries $1.5 billion to take over its chip manufacturing unit

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IBM’s chip-manufacturing unit has been performing below par in recent years, and today it has agreed to pay the Silicon-Valley based Globalfoundries $1.5 billion to take on its money-losing chip-manufacturing operations off its hands.

The US tech is expected to announce the deal today along with its third-quarter results. Two people familiar with the process of deal told Bloomberg that IBM will pay Globalfoundries the amount over three years and IBM in return will receive $200 million in assets, for a net transaction of $1.3 billion.

The deal seems to have in process for some time, and isn’t surprising as the chip market has become increasingly competitive, making it tough for IBM to set its feet in. Initially, IBM had planned to offer $1 billion to take over its business, but Globalfoundries disagreed and asked for $2 billion, according to Bloomberg report.

Globalfoundries said it would control IBM’s manufacturing operations in East FishKill, New York and Essex Junction, Vermont, and employ all IBM staff affected by the deal. As part of the deal, Globalfoundries will also supply IBM with Power processors, which it needs for mainframe computers and its Watson technology, for example.

Globalfoundries is owned by the Mubadala Development of the Government of Abu Dhabi, and the 10-year contract will enable it to tap into the chip unit’s engineering and industry expertise.

Via: Bloomberg