IBM Corp was willing to compensate Globalfoundries Inc to take on its money-losing chip foundry operations, according to a person familiar with the negotiations.
IBM was offering about US$1 billion to entice Globalfoundries to take the unit, said the person, who asked not to be identified because the talks were private. Globalfoundries wanted to be paid about US$2 billion, enough to offset the division’s losses, the person said.
IBM’s willingness to pay underscores the urgency for chief executive Ginni Rometty to get less-profitable businesses off the books. Even so, letting the deal unravel shows that Rometty was not willing to exit at any cost.
With the talks breaking down, the chip-manufacturing business is likely to continue to weigh on IBM’s profit. The unit loses as much as US$1.5 billion a year, a person familiar with the matter said in June. Rometty is striving to meet next year’s earnings goals after nine straight quarters of falling revenue.
“The first rule of negotiating anything is you need to be able to walk away from a deal,” Tirias Research founder Jim McGregor said in a phone interview from Phoenix. “This might just be posturing. You may see this resurrect itself in three to six months.”
Ed Barbini, a spokesman for Armonk, New York-based IBM, declined to comment, as did Kevin Kimball, a spokesman for Globalfoundries.
Sources said in June that Globalfoundries was primarily interested in acquiring IBM’s engineers and intellectual property, rather than manufacturing facilities. Globalfoundries would have acted as a supplier for IBM’s microprocessors, they said at the time.
Globalfoundries had placed little or no value on IBM’s factories because they are too old, a person said two weeks ago.
To stay competitive in manufacturing, IBM might have to invest billions of dollars to keep its plants up to date with newer chip technology. IBM’s East Fishkill, New York, location cost US$2.5 billion to build.
IBM’s semiconductors, which include the PowerPC lineup, have been used in personal computers, game machines and other equipment. Still, Intel Corp’s dominance in the processor market has left IBM with less of a role in the chip industry.
IBM’s microelectronics manufacturing revenue slid 17 percent in the first half of this year, according to a company filing. That unit accounted for less than 2 percent of IBM’s US$100 billion in revenue last year.
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