IBM to get out of chip business

<p>The US tech giant is to sell chip unit to Globalfoundries.</p>

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. 

Find up to date information on the FTSE 100 and spread betting strategies at City Index.


Build your confidence risk free
Join our live webinars for the latest analysis and trading ideas. Register now

StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.