IBM to pay Globalfoundries $1.5 billion to take chip unit

Mon Oct 20, 2014 9:15am EDT
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By Abhirup Roy

(Reuters) - IBM Corp (IBM.N: Quote) said it would hive off its loss-making semiconductor unit to contract-chipmaker Globalfoundries Inc to focus on cloud computing and big data analytics.

IBM will pay Globalfoundries $1.5 billion in cash over the next three years to take the chip operations off its hands, the companies said in a statement on Monday.

IBM took a related pre-tax charge of $4.7 billion in its third quarter. It also reported a 4 percent drop in revenue on Monday, hurt by weak sales in its software and services businesses.

IBM's shares fell 8 percent to $167 in premarket trading.

"They need to narrow their focus, get their A-game on, and any distractions from a core business perspective, such as this deal, need to be put in the rear-view mirror," FBR Capital Markets analyst Daniel Ives told Reuters.

"From an IBM and investor perspective, it takes one troubled area out of the core franchise."

IBM has been reducing its presence in the hardware industry. The company completed its $2.1 billion sale of the x86 server business to Lenovo Group Ltd (0992.HK: Quote) earlier this month.

In 2005, Lenovo acquired IBM's consumer PC laptop business for $1.25 billion.   Continued...

A man passes by an illuminated IBM logo at the CeBIT computer fair in Hanover February 27, 2011.  REUTERS/Tobias Schwarz