IBM pays $1.5 billion to GlobalFoundries to take over its chip making division

IBM is to pay $1.5 billion in cash to offload its loss-making chip manufacturing division to Abu Dhabi sovereign wealth fund GlobalFoundries.

IBM, which wanted to avoid the cost of upgrading the unit’s technology, said it would now focus on cloud computing, mobile and big data analytics.

The company will take a $4.7 billion charge in the third quarter as a result of the sale.

The sale came as IBM announced a 17% drop in third quarter profit.

IBM said it made $3.5 billion profit for the three months to the end of September, with revenues down 4% to $22.4 billion.

“We are disappointed in our performance,” chief executive Ginni Rometty said.

Ginni Rometty blamed a “marked slowdown” in client buying behavior for the drop in sales, which were lower than analysts had expected.

However, she said the results also reflected “the unprecedented pace of change in our industry.”

IBM is trying to adapt to industry-wide changes and has been restructuring to focus on its software products.

The disposal of the unprofitable chip making business is the latest step by Ms Rometty to sharpen this focus.

IBM said the sale would enable it to “focus on fundamental semiconductor and material science research, development capabilities and commitment to delivering future semiconductor technologies”.

GlobalFoundries said it would offer jobs to all IBM employees affected.

IBM will spread the $1.5 billion payment to GlobalFoundries over the next three years.

Under the terms of the deal, GlobalFoundries will get intellectual property and technologies related to the chip business.

“IBM needs to find success and growth in the cloud through organic and acquisitive means in our opinion, otherwise there could be some darker days ahead for the tech giant,” said FBR Capital Markets analyst Daniel Ives.