IBM to get out of chip business

IBM has agreed to pay sovereign wealth fund GlobalFoundries $1.5 billion (£930 million) to offload its unprofitable chip business.

The tech giant would receive $200 million worth of assets, making the net value of the deal $1.3 billion. The deal also involves a ten-year arrangement for Global Foundries to supply Power chips to IBM.

The news ends months of speculation that IBM was getting out of this industry. According to Bloomberg, the company was losing as much as $1.5 billion every year on its semiconductor business.

The agreement with Abu Dhabi's GlobalFoundries is due to be announced in the US later today (October 20th), according to a person familiar with the agreement cited by Bloomberg.

The US tech giant said it wanted to avoid the cost of upgrading the unit's technology and noted it would now focus on cloud computing, mobile and big data analytics. IBM will take a $4.7 billion charge in the third quarter as a result of the sale, the BBC reports.

The sale came as IBM announced a 17 per cent drop in third quarter profit, with revenues down four per cent to $22.4 billion. "We are disappointed in our performance," chief executive Ginni Rometty said, adding that a "marked slowdown" in client buying behaviour was to blame for the drop in sales. However, she said the results also reflected "the unprecedented pace of change in our industry."

The company said the sale would enable it to "focus on fundamental semiconductor and material science research, development capabilities and commitment to delivering future semiconductor technologies". It will provide an update on its 2015 projections in January, Bloomberg reports.

IBM's shares tumbled 6.8 per cent this morning at 10:35 ET in New York. 

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