IBM to Pay Globalfoundries $1.5 billion for chip unit

NEW YORK -- International Business Machines agreed to pay Globalfoundries $1.5 billion to take an unprofitable chip-manufacturing unit off its hands.

IBM will pay Globalfoundries the cash over three years, the companies said in a statement Monday. Globalfoundries will be IBM's exclusive provider of specific Power processors for the next 10 years, in exchange for access to IBM's intellectual property. IBM will take a third-quarter pretax charge of $4.7 billion.

After months of on-again, off-again talks, IBM Chief Executive Officer Ginni Rometty struck a deal to jettison what has been a drag on earnings. Globalfoundries, owned by an investment arm of the government of Abu Dhabi, is taking on the unit to tap the expertise of its engineers in the fundamentals of semiconductor design and manufacturing.

"IBM has always taken the long view of its business strategy, continuously reinventing," Tom Rosamilia, IBM's senior vice president of the systems and technology group and integrated supply chain, said in a blog post Monday, calling the deal "one more step in the company's reinvention."

The cash portion paid to Globalfoundries will be partially offset by $200 million of working capital. IBM's third-quarter charge will account for the cash payment and a $2.4 billion non-cash writedown on the business.

Globalfoundries will acquire and operate manufacturing facilities in East Fishkill, N.Y., and Essex Junction, Ver., and also add IBM's commercial microelectronics business. The company said it plans to provide jobs for all IBM employees, aside from a group that will remain with IBM.