As part of its strategy of getting rid of low-margin and unprofitable businesses, IBM may sell off its semiconductor manufacturing facility and exit the market of contract chip manufacturing. The decision should have been made much earlier, but for some reason IBM kept its fab, but did not upgrade them.
IBM has appointed Goldman Sachs to investigate possible buyers for its semiconductor business, according to a report from the Financial Times. IBM is not wedded to the idea of selling and could also seek a partner with which to create a joint venture for its semiconductor operations, the report claims. Rumours about IBM’s plan to sell off its semiconductor business have been floating around for years now, but have never resulted into an agreement.
IBM’s contract semiconductor manufacturing business operates a rather old 200mm fab in Burlington, Vermont, and an advanced 300mm facility in East Fishkill, New York. Manufacturing capacities of IBM are not large, but it can fulfill demand for rather high-volume products, such as game consoles.
IC Insights, a semiconductor market tracking firm, claims that IBM was the No. 11 contract maker of chips in 2013. Last year it earned $485 million from operations, a 12% increase over the previous year. By contrast, Taiwan Semiconductor Manufacturing Co., the world’s largest contract maker of chips, earned $19.85 billion in revenue last year. Revenue of the remaining top four contract makers of chips were around $4 billion last year.
Market observers have long expressed views that IBM’s semiconductor operations are not profitable for the company. At the same time, the firm can make its own chips in-house and tailor process technologies to its Power-architecture microprocessors that are used in IBM’s mission critical and business critical machines as well as Watson and other supercomputers. Still, such chips are made in low quantities and can be outsourced to other manufacturers without many problems.
Although IBM is viewed by many as an ultimate technology and computer company, it is not. IBM is a technology-based solutions company that functions at multiple economic and geopolitical levels worldwide. IBM's core businesses are systems and engineering services, creation of solutions for the world’s most demanding requirements as well as researching technologies and concepts of the future business machines. Although IBM spends vast amounts of money on researching materials and structures for future semiconductors, manufacturing of actual chips is neither profitable nor is the core competency of IBM, according to Boris Petrov, the principal of the Petrov Group. Therefore, it is logical for IBM to sell off its semiconductor manufacturing business, but to retain IP as well as R&D operations.
“IBM will continue to do research – research and engineering services are IBM's strengths – not low cost manufacturing. […] [IBM has invested a lot in] SOI, eDRAM, TSV, 3D silicon and all the expensive material science directions that IBM developed for its internal needs. In my scenario, IBM will provide process and materials research [and the potential buyer for the fab] will provide common platform wafer foundry services,” said Boris Petrov in a conversation with X-bit labs around four years ago.
The value of IBM’s foundry business is unknown, but it should be kept in mind that in addition to the fabs, the buyer will get IBM’s clients and most likely IBM as a client.