IBM Said to Reject Globalfoundries’ Bid for Chip-Making Unit

Jul 25, 2014 4:26 pm ET

(Updates with IBM closing price in fourth paragraph.)

July 25 (Bloomberg) -- International Business Machines Corp.’s talks to sell its money-losing chip-manufacturing operations to Globalfoundries Inc. have ended after the two companies failed to agree on terms, according to people familiar with the process.

Globalfoundries, owned by an investment arm of the government of Abu Dhabi, made an offer that was rejected by IBM as too low, said the people, who asked not to be identified because the negotiations are private. James Sciales, a spokesman for IBM, and Kevin Kimball, a spokesman for Santa Clara, California-based Globalfoundries, both declined to comment on speculation.

The breakdown of the talks is a setback for IBM Chief Executive Officer Ginni Rometty as she attempts to meet 2015 earnings goals by shedding less profitable units and reversing nine straight quarters of revenue declines. Globalfoundries, which has its own plant in New York state, had placed little or no value on IBM’s factories because they are too old, the person said.

IBM shares fell 0.4 percent to $194.40 at the close in New York. The stock has risen 3.6 percent this year.

Last month, Bloomberg News reported that Globalfoundries was primarily interested in acquiring IBM’s engineers and intellectual property rather than manufacturing facilities, according to people with knowledge of the matter. Globalfoundries would have acted as a supplier for IBM’s microprocessors, the people said at the time.

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IBM, based in Armonk, New York, had been seeking a buyer for the division since at least last year, a person with knowledge of the matter said in February. IBM had turned its attention to finding a joint-venture partner for the business because such an arrangement would let the company maintain control of the design and intellectual property of the chips, a person said at the time.

While Rometty has tried to rid the company of the cost- intensive manufacturing segment, earlier this month she reaffirmed IBM’s commitment to semiconductor research and development with a plan to spend $3 billion in the next five years. The funds will go toward programs to create smaller, more powerful chips that can be used in systems like mainframe, Power and the Watson technology, which analyzes data in conversational English.

IBM and Globalfoundries, created in a spinoff of Advanced Micro Devices Inc.’s production facilities in 2009, are part of an alliance to develop chip-production technology.

--With assistance from Alex Sherman in New York.