Globalfoundries reportedly turned down $1 billion in cash to take over IBM's chip-making business

Shawn Knight

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IBM CEO Ginni Rometty was hoping Globalfoundries would be willing to take over its chip-making business. The company even offered $1 billion in cash to jettison the division - an offer that Globalfoundries turned down according to a person familiar with the process as reported by Bloomberg.

The same source claims Globalfoundries was looking for a $2 billion payout to take over IBM's chip-making duties, a figure that Rometty was not willing to pay. It's clear that Rometty wants to get rid of the division but she isn't willing to do it at any cost.

The chip-manufacturing operations continue to weigh on the company's profit. In June, a source said the unit was losing as much as $1.5 billion per year. At that rate, it's no surprise that IBM has had nine straight quarters of falling revenue.

Whether or not negotiations are done, however, remains to be seen. As Tirias Research founder Jim McGregor correctly points out, the first rule of negotiating anything is you need to be able to walk away from a deal. As such, McGregor suspects this might just be posturing on Rometty's part. It's entirely possible that talks may resurface within three to six months.

Back in June, rumors surfaced that Globalfoundries was interested in purchasing IBM's engineers and intellectual property. The company placed little to no value on IBM's manufacturing facilities, however, because they were outdated.

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IBM Give me $1billion in cash and I will take over your chip making business or better yet $750million that'l save ya some cash :)

How can someone say no to $1billion and be THAT greedy to ask for double from the people trying to give it away to you with free cash... its like someone turning down taking sony with $10billion in free cash... like seriously how god damn greedy & stupid do you have to be to 1. not take a free ready built business and 2. say no to $1billion free cash...

if IBM seriously wanted to get rid of their chip making business would it not be like 99.8% cheaper just to dump the lot instead of give it away with cash?
 
IBM Give me $1billion in cash and I will take over your chip making business or better yet $750million that'l save ya some cash :)
Probably not that simple. IBM's foundries are getting on in years and likely need repurposing for smaller process nodes. With the next generation of lithography tools reported costing around $200 million apiece, refurbishing a single foundry runs into billions of dollars.
IBM also has some pressing issues with getting a competitive process up and running. Intel is already at 14nm and 10nm, Samsung's 14nm FinFET has also been licensed to GloFo, UMC also has 14nm FinFET close to market, as well as TSMC's 16nmFF / FF+.
It's a crowded market with vendors who have a better track record than does IBM of late.
Classic poisoned chalice scenario.
if IBM seriously wanted to get rid of their chip making business would it not be like 99.8% cheaper just to dump the lot instead of give it away with cash?
Probably isn't an option with existing contracts that still require fulfilling.
 
IBM Give me $1billion in cash and I will take over your chip making business or better yet $750million that'l save ya some cash :)

How can someone say no to $1billion and be THAT greedy to ask for double from the people trying to give it away to you with free cash... its like someone turning down taking sony with $10billion in free cash... like seriously how god damn greedy & stupid do you have to be to 1. not take a free ready built business and 2. say no to $1billion free cash...

if IBM seriously wanted to get rid of their chip making business would it not be like 99.8% cheaper just to dump the lot instead of give it away with cash?

If the unit is losing $1.5billion a year, it's much more complicated than a simple take it and dismantle. People fail to understand that there are ongoing commitments and liabilities that you can't just easily get rid of... thus IBM giving $1billion along with the unit which would lighten the loss column for IBM for the future and IBM won't have to upgrade the facilities which also cost a fortune.

If it was so simple, plenty of companies would line up for the pay day and "destroy" the unit.
 
You guys are saying you will make better decisions, based on 5 paragraphs, than the companies involved. There is a good reason IBM will give a billion and Global Foundries refused to take it. They both predict futures liabilities of over a billion.
 
@ wastedkill

If the company generates negative FCF from operations, it's just a matter of time before the $1B cash injection to purchase a business is used up and what you are left with is a business that continues to lose $ during operations. Therefore, you are actually asking someone to take $1B to keep losing multiples of that over longer periods of time. Without a proper restructuring plan in place, no one takes over a failing business. Not to mention that GloFo themselves have struggled in the last 4 years to turn their own company around.
 
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