IBM to pay Globalfoundries $1.5bn to take semiconductor unit off its hands

Globalfoundries had demanded $2bn to take IBM's struggling semiconductor unit off its hands

A deal in which IBM will pay Globalfoundries $1.5bn to takeover the computer giant's semiconductor unit is moving closer to completion, according to reports, and could be imminent.

IBM will make an "advisory" statement today, which is expected to reveal details of the deal between IBM and the semiconductor company, which was spun-out of Intel's main rival in PC and server microprocessors, AMD, in 2012.

The deal will include a 10-year partnership in which Globalfoundries will supply IBM with Power processors for use in IBM's mid-range and high-end servers, in exchange for access to IBM's intellectual property, according to Bloomberg.

For Globalfoundries the deal will enable it to access chip-making technology, while acquiring a guaranteed customer in IBM. It will also provide more of the scale that it needs to compete, on the one hand, with Intel for the x86-compatible microprocessors it makes for AMD, as well as TSMC and other foundries that make microprocessors under contract.

Micro-electronics now accounts for less than two per cent of IBM's revenue, which was hard hit by the loss of contracts for the latest generation of games consoles to AMD.

According to Bloomberg, IBM had bargained with AMD to pay $1bn to take its semiconductor unit off its hands, while AMD wanted $2bn. The two companies have therefore met in the middle at a $1.5bn price.

The deal will be complicated, however, by IBM's desire to keep its hand in: IBM wants to retain control of the design and intellectual property of the microprocessors it uses in its servers and mainframes, and the company still plans to invest $3bn on semiconductor research and development over the next five years.

The divestiture will continue IBM's shift from hardware maker to services company, started under Lou Gerstner in the 1990s, and continued at pace under current CEO Ginni Rometty.

It follows the sale of the company's low-end server division to Lenovo earlier this year, a deal that has only just been completed, not to mention the 2005 sale of the PC division, also to Lenovo.