I don't understand why IBM couldn't just stop the business if they're having to pay GlobalFoundries to take it. Unless the deal partially includes in some way the 10 years of manufacturing for IBM. The other possibility is them having some social responsibility.
@ reulr No, IBM hires and fires a lot of people each year, so probably it's not mainly severance/compensation; I think, Ryan (AT) is right: to continue providing their solutions ("IBM is a solutions company"), IBM needs POWER and System Z hardware, and the dies for this hardware need to be produced somewhere, and it would be an unnecessary and expensive overhead to move this production to, say, TSMC (say, Oracle's SPARCs are produced by TSMC, if I'm not mistaken). So, these IBM (from now on: GF) fabs will live - because IBM needs the POWER and System Z dies they manufacture.
What exactly is a solutions company? They've now gotten rid of everything related to hardware no? First the PC business, then servers, now the silicon foundries... I'm probably being grossly ignorant but what the heck do they do now?
Yup, mostly R&D, developing patents, datamining and working with massive databases and infrastructure algorithms. IBM has really transformed itself going from purely manufacturing company to a purely intellectual labor one.
One has to assume that IBM had contracts with customers to manufacture semiconductors for them. Even though IBM wants to get out of the business, those contracts with their customers need to be fulfilled. So they can't just throw their hands up in the air and say they don't want to make semiconductors anymore because those contracts would require them to pay penalties. In most cases IBM has probably already received some form of down payment for those contracts from their customers. So Global Foundries gets all the physical and intellectual assets of IBM's semiconductor business, but they also get with it the liabilities of these contracts which need to be fulfilled. In that case, IBM is also handing over cash to Global Foundries so they will honor and complete those contracts, and IBM won't need to pay any fees or penalties for breaking them.
It's naive to treat the $1.5billion as a sort of admission of failure on IBM's part. IBM plans to keep using the fabs to manufacture its own chips, so there is tremendous flexibility for shifting costs around so as to optimize either tax issues or PR issues for either party. Basically the $1.5 billion is just an upfront payment against usage fees over the next ten years, but structuring this way benefits at least, maybe both parties.
Some of their fabs were trusted fabs, meaning there were contracts with the US government for manufacturing that could not be broken with shutting the fabs down. It's why IBM paid someone to *take* the fabs.
"IBM is now expected to pay GlobalFoundries $1.5 billion in cash over the next three years. That sum will be adjusted by the amount of working capital, estimated to be $200 million, according to the statement.
IBM will still invest $3 billion over five years in semiconductor technology research, the results of which GlobalFoundries will have “primary” access to"
Flobulfondries not want to fall out of the top league and reach the position of the UMC. After the license agreement with Samsung for 14nm and now this. look like a serious player who wants a share of 10nm
I can't think of a more mismanaged company than IBM that turns a profit. The fact that they gave away around 8B worth of fabs and 1.5B in cash is a testament to how badly they're screwed up.
IBM invented, but squandered and sold off their Personal Computer, Dynamic Memory (today's DDR3, DDR4, GDDR5 market), and hard drive divisions. Don't tell me that they strategically bowed out. Each of these are multibillion dollar industries that many companies still turn a profit in. If IBM was well run they'd still be at the top of these fields and be the largest company that ever existed. It's sad to see a company that was once so innovative let itself whither away to nothing.
Note: AT forums flags lists as spam. Please fix this.
Read more on current IBM on the web and you'll see what people are saying; the overall impression is their top managers in the last 10 years are effectively transforming them to the services and consulting company, and most of the other businesses they had are already sold/given away to somebody else in the IT industry.
Talking hardware, it's like now they essentially only have their own System Z, POWER and some custom storage stuff at their disposal. The rest is services/consulting/research and so on. So, some people think it's time for them to rename themselves into IBS (International Business Services) or IBC (International Business Consulting) :) It's not not good or bad by itself, people are just saying it's just a state of things with them.
Maybe it works for them, assuming they're after making more money rather than selling more products. IBM is about as large, revenue/profit-wise, as Intel+Western Digital+Seagate+Micron.
Intel has given fabs away as well just not often. They had one loosing money in my town back during the P4 days. It would have cost so much to decommission the "tools" (what intel calls fab equipment) and the hazardous chemicals attached to them that they just gave the building with evreything in it to the city. They took out a few tools and sold them mostly to Chinese fans. The city made use of the office space there and just locked people out of the fab building because they couldn't guarantee it was clean after they spent 2 years paying people to clean it.
You are missing the point. This is just another step in the reinvention of IBM. This business was a money loser, the x86 business was a few Billion at best. The Software Business fluctuates between $45 and $50 Billion. The Integrator side is about the same size.
IBM still is a massive patent and R&D machine but that process has moved more and more to software. When you hear someone say software is eating the world it also means that that is where the money will be. Watson is the future. The hardware is largely irrelevant for that type of Big Data usage.
I care about hardware because it is neat but you can't pretend that it matters anywhere as much as software in the real world. Even Apple, a hardware company would only sell pretty phones if the software wasn't exclusive.
The great strides in the future will all be on the software side, hardware is useful only as much as it runs software faster and cheaper.
Interesting article, but the looping flash advertisements were really distracting. Short animations are OK, but looping animations make for a poor reading experience.
I think many of us (including myself) whitelist AnandTech and other sites we care about. They get their revenue from advertising on the site. I fully support being constructively critical of the types of adverts being seen here.
This is pretty typical and has been predicted for many years. Having smart people and inventing technology has little to do with being successful if you cant manufacture it cost effectively. If you compound it with arrogance ("we invented HDD").
Consulting and services is perfect for IBM. Its something they actually do well. Their ability to develop more expensive chips in lower volume with less customers was not winning.
When you hear Intel say "we invented the microprocessor and have the most talent" when challenged on why their wafer cost is 2x TSMCs, then you know it will be 5 years or less to sell off.
This is such a classic response of techy myopia. When was any hardware revolutionary in the last few years. The extra speed and efficiency is nice but software improvement is an order of magnitude more important for true leaps nowadays. IBM still spends more on R&D than anybody and the result will be seen in SW advances if anywhere.
I'd be more worried about the transition to SaaS eating their margins if I were IBM.
This is too bad for IBM. Finding or creating a new market in which to take the lead is very difficult these days. In 1970 Western Digital was a chip manufacturer. But at least they found a new market early on; HDD controllers and then HDDs.
IBM is no longer a hardware company, since the problem with hardware is that competition is always too intense, hence the profit margin is very very low. That's why they're trying so hard to transform into a purely solution based company.
Their current problem isn't not profiting with all their product branches, such as servers but semiconductors, but rather the profit is not high enough for them to keep working on it.
That's why they're selling off these branches so they could put more of their energy and resources into more profitable areas like cloud and artificial intelligence, which are seeing big growth in the last few years.
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31 Comments
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Murloc - Monday, October 20, 2014 - link
I don't understand why IBM couldn't just stop the business if they're having to pay GlobalFoundries to take it.Unless the deal partially includes in some way the 10 years of manufacturing for IBM.
The other possibility is them having some social responsibility.
Khenglish - Monday, October 20, 2014 - link
So I made a post relevant to the topic but can't post it because, "This comment is apparently spam and we do not allow spam comments."But I can post this. Go figure.
Ryan Smith - Monday, October 20, 2014 - link
The short answer is that IBM still needs someone to make their chips, and they need that someone to offer the specific processes that IBM wants.raulr - Monday, October 20, 2014 - link
Was wondering the same thing. Maybe severance and unemployment compensation would cost nearly as much anyway?TiGr1982 - Monday, October 20, 2014 - link
@ reulrNo, IBM hires and fires a lot of people each year, so probably it's not mainly severance/compensation;
I think, Ryan (AT) is right: to continue providing their solutions ("IBM is a solutions company"), IBM needs POWER and System Z hardware, and the dies for this hardware need to be produced somewhere, and it would be an unnecessary and expensive overhead to move this production to, say, TSMC (say, Oracle's SPARCs are produced by TSMC, if I'm not mistaken). So, these IBM (from now on: GF) fabs will live - because IBM needs the POWER and System Z dies they manufacture.
TiGr1982 - Monday, October 20, 2014 - link
Sorry, "raulr", no comment editing feat here...Impulses - Tuesday, October 21, 2014 - link
What exactly is a solutions company? They've now gotten rid of everything related to hardware no? First the PC business, then servers, now the silicon foundries... I'm probably being grossly ignorant but what the heck do they do now?R&D/custom enterprise software/consulting?
niva - Tuesday, October 21, 2014 - link
Yup, mostly R&D, developing patents, datamining and working with massive databases and infrastructure algorithms. IBM has really transformed itself going from purely manufacturing company to a purely intellectual labor one.pfdman - Tuesday, October 21, 2014 - link
One has to assume that IBM had contracts with customers to manufacture semiconductors for them. Even though IBM wants to get out of the business, those contracts with their customers need to be fulfilled. So they can't just throw their hands up in the air and say they don't want to make semiconductors anymore because those contracts would require them to pay penalties. In most cases IBM has probably already received some form of down payment for those contracts from their customers. So Global Foundries gets all the physical and intellectual assets of IBM's semiconductor business, but they also get with it the liabilities of these contracts which need to be fulfilled. In that case, IBM is also handing over cash to Global Foundries so they will honor and complete those contracts, and IBM won't need to pay any fees or penalties for breaking them.name99 - Monday, October 20, 2014 - link
It's naive to treat the $1.5billion as a sort of admission of failure on IBM's part.IBM plans to keep using the fabs to manufacture its own chips, so there is tremendous flexibility for shifting costs around so as to optimize either tax issues or PR issues for either party. Basically the $1.5 billion is just an upfront payment against usage fees over the next ten years, but structuring this way benefits at least, maybe both parties.
tipoo - Monday, October 20, 2014 - link
Some of their fabs were trusted fabs, meaning there were contracts with the US government for manufacturing that could not be broken with shutting the fabs down. It's why IBM paid someone to *take* the fabs.Kalessian - Tuesday, October 21, 2014 - link
Added to the above contractual obligations, I would guess that a lot of their expensive equipment is leased in some way. Just a guess, thoughSamus - Tuesday, October 21, 2014 - link
Because if IBM doesn't help out GF, then there will be no GF to buy from (because without this deal, GF would be next to fail)IBM is effectively propping up GF.
Arnulf - Monday, October 20, 2014 - link
From penultimate paragraph:"The important of IBM’s manufacturing expertise in particular"
Importance ?
Achtung_BG - Monday, October 20, 2014 - link
Very interesting. Most impressed me this:"IBM is now expected to pay GlobalFoundries $1.5 billion in cash over the next three years. That sum will be adjusted by the amount of working capital, estimated to be $200 million, according to the statement.
IBM will still invest $3 billion over five years in semiconductor technology research, the results of which GlobalFoundries will have “primary” access to"
Flobulfondries not want to fall out of the top league and reach the position of the UMC.
After the license agreement with Samsung for 14nm and now this. look like a serious player who wants a share of 10nm
Khenglish - Monday, October 20, 2014 - link
I can't think of a more mismanaged company than IBM that turns a profit. The fact that they gave away around 8B worth of fabs and 1.5B in cash is a testament to how badly they're screwed up.IBM invented, but squandered and sold off their Personal Computer, Dynamic Memory (today's DDR3, DDR4, GDDR5 market), and hard drive divisions. Don't tell me that they strategically bowed out. Each of these are multibillion dollar industries that many companies still turn a profit in. If IBM was well run they'd still be at the top of these fields and be the largest company that ever existed. It's sad to see a company that was once so innovative let itself whither away to nothing.
Note: AT forums flags lists as spam. Please fix this.
TiGr1982 - Monday, October 20, 2014 - link
Read more on current IBM on the web and you'll see what people are saying; the overall impression is their top managers in the last 10 years are effectively transforming them to the services and consulting company, and most of the other businesses they had are already sold/given away to somebody else in the IT industry.Talking hardware, it's like now they essentially only have their own System Z, POWER and some custom storage stuff at their disposal. The rest is services/consulting/research and so on. So, some people think it's time for them to rename themselves into IBS (International Business Services) or IBC (International Business Consulting) :)
It's not not good or bad by itself, people are just saying it's just a state of things with them.
sheh - Monday, October 20, 2014 - link
Maybe it works for them, assuming they're after making more money rather than selling more products. IBM is about as large, revenue/profit-wise, as Intel+Western Digital+Seagate+Micron.hpglow - Monday, October 20, 2014 - link
Intel has given fabs away as well just not often. They had one loosing money in my town back during the P4 days. It would have cost so much to decommission the "tools" (what intel calls fab equipment) and the hazardous chemicals attached to them that they just gave the building with evreything in it to the city. They took out a few tools and sold them mostly to Chinese fans. The city made use of the office space there and just locked people out of the fab building because they couldn't guarantee it was clean after they spent 2 years paying people to clean it.errorr - Monday, October 20, 2014 - link
You are missing the point. This is just another step in the reinvention of IBM. This business was a money loser, the x86 business was a few Billion at best. The Software Business fluctuates between $45 and $50 Billion. The Integrator side is about the same size.IBM still is a massive patent and R&D machine but that process has moved more and more to software. When you hear someone say software is eating the world it also means that that is where the money will be. Watson is the future. The hardware is largely irrelevant for that type of Big Data usage.
I care about hardware because it is neat but you can't pretend that it matters anywhere as much as software in the real world. Even Apple, a hardware company would only sell pretty phones if the software wasn't exclusive.
The great strides in the future will all be on the software side, hardware is useful only as much as it runs software faster and cheaper.
GrammarNietzsche - Monday, October 20, 2014 - link
Interesting article, but the looping flash advertisements were really distracting. Short animations are OK, but looping animations make for a poor reading experience.p1esk - Monday, October 20, 2014 - link
Something wrong with your Adblock Plus?Spoony - Tuesday, October 21, 2014 - link
I think many of us (including myself) whitelist AnandTech and other sites we care about. They get their revenue from advertising on the site. I fully support being constructively critical of the types of adverts being seen here.jospoortvliet - Thursday, October 23, 2014 - link
Any site using flash deserves to be blocked. I have adblock off by default and turn it on only on annoying websites...OreoCookie - Monday, October 20, 2014 - link
This is just sad. I remember when IBM was at the forefront of so many technologies and now they're turning into a consulting company.emvonline - Tuesday, October 21, 2014 - link
This is pretty typical and has been predicted for many years. Having smart people and inventing technology has little to do with being successful if you cant manufacture it cost effectively. If you compound it with arrogance ("we invented HDD").Consulting and services is perfect for IBM. Its something they actually do well. Their ability to develop more expensive chips in lower volume with less customers was not winning.
When you hear Intel say "we invented the microprocessor and have the most talent" when challenged on why their wafer cost is 2x TSMCs, then you know it will be 5 years or less to sell off.
errorr - Tuesday, October 21, 2014 - link
This is such a classic response of techy myopia. When was any hardware revolutionary in the last few years. The extra speed and efficiency is nice but software improvement is an order of magnitude more important for true leaps nowadays. IBM still spends more on R&D than anybody and the result will be seen in SW advances if anywhere.I'd be more worried about the transition to SaaS eating their margins if I were IBM.
hlmcompany - Monday, October 20, 2014 - link
This is too bad for IBM. Finding or creating a new market in which to take the lead is very difficult these days. In 1970 Western Digital was a chip manufacturer. But at least they found a new market early on; HDD controllers and then HDDs.sheh - Monday, October 20, 2014 - link
Speaking of Moore's Law, it apparently talks about cost as well. Some say if this is taken into account Moore's Law's stuck at 28nm (at least for now): http://electroiq.com/blog/2014/03/moores-law-has-s...Hung_Low - Tuesday, October 21, 2014 - link
IBM is no longer a hardware company, since the problem with hardware is that competition is always too intense, hence the profit margin is very very low. That's why they're trying so hard to transform into a purely solution based company.Their current problem isn't not profiting with all their product branches, such as servers but semiconductors, but rather the profit is not high enough for them to keep working on it.
That's why they're selling off these branches so they could put more of their energy and resources into more profitable areas like cloud and artificial intelligence, which are seeing big growth in the last few years.
AnnonymousCoward - Saturday, October 25, 2014 - link
Excellent article and comments.