IBM just announced that it’s no longer making its own chips, a part of its business that it was losing money on. IBM is paying $1.5 billion to GlobalFoundries Inc. — a company based in Santa Clara, California but owned by an Abu Dhabi sovereign wealth fund — to take over its the division.
GlobalFoundries has a lot to gain by acquiring IBM’s chip division. The company will get access to IBM’s engineers and intellectual property.
“GlobalFoundries will also pick up some semiconductor process technology expertise that hopefully makes the company more competitive going forward,” says Needham analyst Quinn Bolton.
Fewer and fewer tech companies make their own chips. Apple, Dell, Qualcomm all rely on outside manufacturers. It makes sense economically because chip companies have the advantage of scale, says Gartner analyst Sergis Mushell. “If you are making ten of something vs a million of something from a price point perspective it’s more attractive when you make millions.”
The largest contract chip maker, Taiwan Semiconductor Manufacturing Company, quadrupled its capital spending in the last five years from $2.5 billion to $10 billion. If you are a company like IBM you have to look at those numbers and ask yourself, does it make sense to take a loss in chip making when you could just buy them from someone else?
IBM’s answer as of today is no, it doesn’t.
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