IBM to pay Globalfoundries $1.5 bn to take over its chip unit

IBM Corp will pay government of Abu Dhabi-owned contract-chipmaker Globalfoundries Inc $1.5 bn, to take over its loss-making semiconductor unit.

As part of the agreement, Globalfoundries will supply IBM with Power processors for its systems like mainframe computers and Watson data-analytics technology., in exchange for access to IBM's intellectual property.

IBM, which has been keen to get rid of the unit, which has dragged its revenues down and   CEO Ginni Rometty was looking at how margins could be increased even as revenue growth slowed while the company transitioned to new technology and services offerings.

According to reports this summer, IBM was working on a deal to have GlobalFoundries take over the plant. The deal did not materialise, however, over disagreement on the amount of money GlobalFoundries would be paid by IBM to take over the money-losing fab, reports said.

While GlobalFoundries wanted $2 billion, IBM was offering $1 billion, a Bloomberg report said.

IBM had been increasingly disposing off its hardware assets and was closer to transition to a chip licensing model approach much like ARM Holdings.

The company, earlier this month closed a deal to sell its x86 server business to Lenovo for $2.1 billion, announced in January this year (See: Lenovo Group to buy IBM's server business for $2.3 billion).

The company's hardware business now centred around Power architecture, best known for powering the Watson supercomputer, which outwitted humans in the TV game show "Jeopardy."

For decades, IBM made Power servers in-house, but is now working with other hardware makers to bring the chip architecture to more servers.

The company last year started licensing Power architecture to allow third-party companies develop chips, servers and components. It also formed the OpenPower Foundation which has Samsung, Google, Tyan and Nvidia as members -- to promote Power-based software and hardware development.

If the deal with GlobalFoundries were to materialise, IBM would likely move the manufacturing of its Power chips into the hands of the Santa Clara, California, company.

GlobalFoundries operated many factories worldwide including, one in Malta, New York.