IBM Said to Focus on Chip Joint Venture Amid Dim Sale Prospects

Feb 08, 2014 12:01 am ET

Feb. 8 (Bloomberg) -- International Business Machines Corp. is focused on finding a joint-venture partner for its chip- manufacturing business after failing to attract a buyer for the division, two people with knowledge of the matter said.

Entering a partnership would let IBM maintain control of the design and intellectual property of the chips, said one of the people, who asked not to be identified because the deliberations are private. IBM already has a more limited development agreement with Globalfoundries Inc., which works with the company to make chips in New York state.

IBM has been divesting its less profitable businesses to boost earnings amid seven consecutive quarters of declining revenue. Last month, the Armonk, New York-based company agreed to sell its low-end server business to Lenovo Group Ltd. for $2.3 billion. The deal followed a 2005 transaction that sent IBM’s personal-computer unit to Lenovo.

IBM hired Goldman Sachs Group Inc. to explore possibilities for its chip business, another person familiar with the matter said. The company has unsuccessfully sought a buyer for the division since at least last year, one of the people said. James Sciales, a spokesman for IBM, declined to comment.

The company’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 revenue.

Cloud Shift

The company also is coping with an industrywide shift to cloud computing, where information is stored online instead of onsite. That transition has lessened the need for corporate customers to buy their own server hardware, crimping IBM’s revenue in that market. Chief Executive Officer Ginni Rometty is focusing more on software and services in a bid to reignite sales and meet a goal of $20 a share in earnings by next year.

Rometty and other top executives decided to forgo annual bonuses last year because of disappointing results. Revenue fell 5.5 percent to $27.7 billion in the fourth quarter, missing the $28.3 billion projected by analysts.

IBM shares rose 1.5 percent to $177.25 yesterday in New York. The stock has fallen 5.5 percent this year.

The Financial Times reported earlier this week that IBM was seeking a buyer or partner for the division.

--With assistance from Ian King in San Francisco. Editors: Nick Turner, Crayton Harrison