The long-rumored deal for GlobalFoundries to take over IBM’s semiconductor technology business became a done deal Monday, with IBM paying $1.5 billion to unload two money-losing factories.
Politicians who have been concerned about IBM’s plans took it as encouraging that GlobalFoundries will take ownership of IBM chip plants in East Fishkill and in Essex Junction, Vermont.
Uncertainty has surrounded IBM’s plans for both facilities, where employment levels have dropped over the years.
“This is good news for the Hudson Valley and Capital Region,” said U.S. Rep. Chris Gibson, R-Kinderhook, whose district includes East Fishkill.
Both regional IBM plants are expected to continue operating and “substantially all” IBM employees will be offered jobs, GlobalFoundries said. About 4,000 people work in Essex Junction, which once employed twice as many, and more than 1,000 work at the East Fishkill plant in Dutchess County.
“This is good news for Vermont,” Gov. Peter Shumlin said in a statement. “I expect that this facility and its workers will not only survive this transition but will thrive under GlobalFoundries’ new ownership.”
The sale takes IBM out of the costly chipmaking business, but some analysts said GlobalFoundries is in a better position to make the plants profitable.
GlobalFoundries officials said the company also is obtaining significant intellectual property, including thousands of computer chip patents.
In addition, GlobalFoundries will become the exclusive supplier to IBM of 22-, 14- and 10-nanometer chips for the next 10 years, guaranteeing a continued flow of revenue to GlobalFoundries. Many of those chips are likely to be made at Fab 8 in Malta.
The deal between the two technology giants has been the subject of on-, off- and on-again rumors for months, with neither company confirming there were even negotiations.
While IBM has been looking to leave chipmaking behind, GlobalFoundries has been aggressively expanding, and will now have three factories within 250 miles of one another in the Northeast.
“The big news for this region is how this solidifies the high-tech corridor from Dutchess County to Burlington as one of the major global hubs for semiconductor research, innovation and production, and Saratoga County is right in the middle,” said GlobalFoundries spokesman Travis Bullard.
GlobalFoundries’ Fab 8 complex in the Luther Forest Technology Campus is the Capital Region’s only commercial chip plant, but significant academic and commercial research also occurs here. Fab 8 is drawing employees from around the world.
The company, headquartered in California’s Silicon Valley, is the second-largest chip foundry company in the world, and analysts said that could help it make the IBM plants profitable.
“IBM’s lemons may well be Globalfoundries’ lemonade, as the one key element that IBM has been unable to produce GlobalFoundries has in spades: volume,” analyst Roger Kay wrote on Forbes.com. “If GlobalFoundries can get the semi operations up to a decent scale, it can make money with them.”
The IBM Vermont plant makes radio frequency chips, which are in high demand for cellphones.
Foundries make chips to order for electronics companies that don’t have the desire or capacity to do their own chipmaking. For several years, it has been the fastest-growing segment of the chip industry.
“This acquisition solidifies GlobalFoundries’ leadership position in semiconductor technology development and manufacturing,” said Sanjay Jha, GlobalFoundries’ CEO. “This acquisition further strengthens advanced manufacturing in the United States and builds on established relationships in New York and Vermont.”
Despite the sale, IBM said it remains committed to its five-year, $3 billion investment in a research collaboration with SUNY Polytechnic Institute in Albany.
“GlobalFoundries will also benefit from an influx of one of the best technical teams in the semiconductor industry,” GlobalFoundries said in a statement.
The sale allows IBM to focus on research and development of cloud, mobile, big data analytics and other areas, IBM officials said.
Chance to refocus
The sale news came on the same day that IBM announced a $4.7 billion quarterly loss, due in part to costs incurred by the agreement. The company’s top official said selling its chipmaking division will let it refocus.
“While we did not produce the results we expected to achieve, we again performed well in our strategic growth areas — cloud, data and analytics, security, social and mobile — where we continue to shift our business. We will accelerate this transformation,” IBM CEO Virginia Rometty said.
IBM and GlobalFoundries have had a long-standing working relationship, with IBM in 2011 being the first major customer to agree to buy from the Fab 8 facility in Malta.
The companies have also been part of advanced research partnerships in Albany and elsewhere, and several Fab 8 executives, including Vice President and General Manager Tom Caulfield, have come from IBM. This summer, a team of 100 IBMers came to Malta to help with the plant’s continued startup.
Todd Shimkus, president of the Saratoga County Chamber of Commerce, said the announcement was good news for the region.
“GlobalFoundries has already invested $10 billion locally creating thousands of new jobs, with more hiring likely,” Shimkus said. “This agreement bolsters these significant investments in our region.”
The deal also marks the second time GlobalFoundries, which is privately owned by a government wealth fund in Abu Dhabi, has grown through a major acquisition. In 2009, the fund had purchased Advanced Micro Devices’ manufacturing facilities, and up-sized by buying the well-established Charter Semiconductor of Singapore.
GlobalFoundries Fab 8, meanwhile, has been hiring aggressively, with the goal of employing 3,000 people by year’s end at its Fab 8.1 manufacturing facility and a new technology development center. The company has approvals to build a second manufacturing plant, but hasn’t committed to building it.
Bullard was vague on what the acquisitions might mean to those plans.
“As we have previously stated, any decisions on additional facilities will be driven by a variety of factors, including local site plan issues, the availability of regional infrastructure, market demand and global business conditions,” Bullard said.