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IBM Said Near Deal With Globalfoundries for Chip-Making

June 11 (Bloomberg) -- International Business Machines Corp. is nearing a deal with Globalfoundries Inc. for its chip-manufacturing business, according to people familiar with the matter, after searching for a buyer for the money-losing unit since last year.

Globalfoundries is primarily interested in acquiring IBM’s engineers and intellectual property rather than manufacturing facilities, which have little value as they are more than a decade old, said people with knowledge of the matter who asked not to be named because the talks are private. Globalfoundries, which has its own plant in New York state and a technology joint development project with IBM, will act as a supplier for IBM’s microprocessors, the people said. Terms of the deal weren’t available.

The chip-manufacturing business itself loses money for IBM -- as much as $1.5 billion a year, according to one of the people. IBM has been unloading less profitable businesses to help meet its 2015 earnings goals amid eight consecutive quarters of declining revenue.

A deal would let IBM divest a business that has been a successful developer of fundamental process technology, yet failed to deliver the level of sales and profit on the manufacturing end that partners such as Samsung Electronics Co. have achieved.

Earlier this year, IBM had turned its attention to finding a joint-venture partner for the business because such an arrangement would let IBM maintain control of the design and intellectual property of the chips, a person with knowledge of the matter said in February. The Armonk, New York-based company had been seeking a buyer for the division since at least last year, a person said at the time.

Lenovo Deal

Chief Executive Officer Ginni Rometty is also trying to offload IBM’s low-end server unit, which Beijing-based Lenovo Group Ltd. agreed to buy for $2.3 billion. The companies have sought more time for a U.S. national-security review of the deal, a person familiar with the matter said this month.

James Sciales, a spokesman for IBM, didn’t respond to phone calls and e-mails requesting comment on the deal. Kevin Kimball, a spokesman for Globalfoundries, said the company doesn’t comment on rumor or speculation.

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. Manufacturing microelectronics accounts for less than 2 percent of IBM’s $100 billion in annual revenue.

Globalfoundries was created in a 2009 transaction in which an investment arm of the government of Abu Dhabi purchased the manufacturing facilities of Advanced Micro Devices Inc. Then, in 2010, the entity acquired Singapore’s Chartered Semiconductor.

IBM fell 1.1 percent to $182.25 today, the lowest closing price since March 14. The company has a market value of about $184 billion.

To contact the reporters on this story: Alex Sherman in New York at asherman6@bloomberg.net; Ian King in San Francisco at ianking@bloomberg.net; Alex Barinka in New York at abarinka2@bloomberg.net

To contact the editors responsible for this story: Sarah Rabil at srabil@bloomberg.net; Mohammed Hadi at mhadi1@bloomberg.net; Pui-Wing Tam at ptam13@bloomberg.net Elizabeth Wollman

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