IBM has to decide to either invest in a business that it doesn't think has high enough margins to deserve investment, or sell it. They're currently spending hundreds of millions of dollars each year laying off workers in microelectronics, shrinking or folding efforts in foundry/ASIC/EDA that perhaps could be sold, but in the IBM fold they're treated as red-headed stepchildren.
They're not going to find anything they want to invest in, though. Time to sell. Doesn't mean they *won't* let it wither, though. Or sell some of it piecemeal. The biggest sticking point is going to be control of research and IP, but they'll look to Google's sale of Motorola Mobility as an example of selling the business but keeping the patent IP. They can't keep all the inventors, though.
IBM microelectronics also has a 200mm fab in Burlington, VT and packaging/test in Bromont, QC as well as the 300mm fab in East Fishkill mentioned.
@ssliva, thanks for pointing out other IBM chip facilities I failed to mention.
I think the genius of this deal, if any deal is ever made, will be how they structure it. As you mentioned, they can sell it in a piece meal manner; or sell just fabs and keep IPs and R&D team; or go all the way in.
I suppose there are many ways to skin the cat, instead of taking an all or nothing approach.
But the question still remains. Even if IBM decides to sell just fabs, what for would they keep the semiconductor R&D then?
IBM is a big think-tank and huge IP company and will grow this way into the future. They don't need to maintain their own semiconductor facilities! Way too costly! All they need is access to some R&D and pilot facilities which they do already.
All they need is access to some R&D and pilot facilities.
I think you are right. Maybe due to IBM's tie with the Common Platform, that's possible. Then, again, I would still have to come back to the question: What's in it for IBM to continue its semiconductor R&D now?
@Junko! What's in it for IBM to continue its semiconductor R&D now? Simple: Securing IP! It is much cheaper to be part of an R&D JV and share the costs. However, the costs to maintaining your own manufacturing facilities becomes way too high for leading edge. In a way IBM becomes fabless. They still may keep Yorktown R&D and may transfer the Fiskill 300mm to an R&D JV.
I am wondering... how can they keep the research without access to fab facilities? This goes together in my opinion. I dont know of anyone else in the industry doing similar research without access to a fab.
Furthermore, selling the semiconductors division does it mean they go fabless or that they sell (or outsource) everything chip related? Both are problematic. For many different standpoints.
The biggest question that IBM's CEO would have to answer is if those fat software and services margins will remain as fat in the case of loosing the unique characteristics of the systems IBM provides. What is the main selling point of IBM if they loose the grip that they have on customers because of their proprietary systems?
I think that IBM should work hard on trying to make the most of its hardware division instead of trying to get rid of it. The whole thing is how far you look at the issue: short-term or long-term. For wall street, long term is totally meaningless. For any other business that wants to stay relevant (instead of becoming opportunistic) it is the other way around.
The mantra of "services, services, services" will stay here for a while until somone wakes up realizing that we are not making anything anymore in North America...at least in Canada we have tons of oil, gas and coal to dig out that should keep us going for 100 years or so...Kris
Every mature economy moves to services and more so under rampant capitalism. However, recalling Feynman's words: "For a successful technology, reality must take precedence over public relations, for Nature cannot be fooled."
GDP is not the only metric I would look at for a healthy society & economy (i.e., service sector contributions). Let's say I was Ireland in the mid 1800's. And we were so proud of having 100% of our locally grown produce being the wonderful potatoe! Then, 1845 hits... Get the picture, health is moderation in everything, or like in nature, a multitude of diversity.
Unlimited growth in one type of entity (e.g., service sector), well, I would use the analogy of a cancer is more appropriate.
From the website "Facts about Germany":
It is not only the 30 major corporations such as Siemens, Volkswagen, Allianz, SAP and BASF listed on the German share index (DAX) that make the country competitive internationally, but ten thousands of small and medium-sized enterprises (up to 500 employees) in manufacturing, in particular mechanical engineering, the supplier industry, as well as nano and biotechnology, which frequently form clusters. Small and medium-sized enterprises employ over 25 million people, making them the biggest employer. They are regarded as the backbone of the German economy and also provide the majority of apprenticeships for young people. Industry is also an important pillar of the German economy. In comparison with other industrial nations such as Great Britain and the USA it has a broad basis with a strong workforce – five million people work in industrial companies. In no other traditional economy does classic indus-trial production play a comparably major role. It contributes some percent to German economic output.
Germany didn't outsource their manufacturing to Far east or whatever low cost labor countries, or if they do it's in neighbor countries; they don't need mass immigration except for high skilled workers and mostly from other European countries. Other countries just do the exact contrary. Guess where the problems are.
"Germany is not yet fully taken by corporatiions" EXACTLY , nor banks and government crooks.
Thinking of it today, i was asking myself were the future STEM students, you know, those the US desperately need, will work if IBM and all outsource their fabs. Perhaps they just need Powerpoint end Spreadsheet experts just to impress shareholders. They should tell them now not to loose their time.
@visi_guy: What about Germany, they buck the trend and don't seem to be hurting?
It's not quite that simple. The products that Germany succsssfully exports are higher-end luxury items which can command a price and margins that will support a manufacturing economy in a nation with Western wage scales.
But these things are structural, and Germany is hurting in some places. Technology is making an increasing number of jobs redundant - what had been done by a human being can now be done by a machine, or by another human somewhere where it's cheaper. A fair number of folks in Germany are victims of technological unemployment, and aren't likely to get other jobs, because the jobs that exist are things they aren't qualified to do, and they may not be able to acquire the needed skills. There's a German economist whose name I've forgetten doing reaearch on the topic, with the underlying question "So what does Germany do for these people?".
Germany is getting away with it so far, but is not guaranteed to continue to be able to.
Adam Sichko, a reporter at the Albany Business Review, coincidentally posted a story about changes to the GlobalFoundries' plans for its Technology Development Center. Abu Dhabi will invest 8-9 billion in GlobalFoundries over the next two years, including an increase in the number of tools planned for the spacious TDC. "One labor union, in a newsletter posted online, informed members that 'the TDC building is being redesigned for a new use, so only limited work can be done on that site till the drawings are redone and coordination takes place,'" Sichko reported.
Transferring manufacturing to GlobalFoundries and sharing R&D makes so much sense for all concerned, including the very able R&D teams at both IBM and GlobalFoundries, that I hope it happens.
Intel cant use their own fabs (ie F42) why would they want an old non-CE! Fab? They already close all other aquired fabs (Colorado and Mass.) Been there before. Tech, patents, and an opportunity to disrupt the GloFo/Samsung alliance as a reason, thats another story.
I am surpised as well...I though IBM technology is the best you can get, in many aspects better than Intel's or TSMC...it would make sense for GF to aquire that...the only issue is price
I don't think a packaging house like Amkor would suddenly go into deep submicron silicon business, that makes little sense to me
High tech prestige starved country like Brasil is a remote possibility...they tried to enter silicon business but so far the only successful product is a simple RFID chip for cows, yes, they have many of them there...but from that to the latest and greatest at IBM is a looooooooong rooad, 20 years in technological development at least
Both Insight64 analyst Nathan Brookwood and I agree that GloFo is by far the likely buyer. They share the same technology, have NY operations within an hour of each other and the alternatives would be owners outside the US that might riase a yellow flag for buyers of IBM servers in the US government.
How advanced is the technology at IBM's Fishkill Fab anyway ? Is n't it a bit over - rated, specially when Intel is so far ahead with FinFETs and despite all claims no competing planar FDSOI is around to go neck to neck. Would it be such a great loss then to spin off the current Fab ? For the next few years can they not just buy generic chips and put them together in their unique architecture and load proprietary software to sell Big Data Inference engines or whatever ? Also their Lab at Yorktown Heights keeps working on graphene devices, perhaps they want to get back in the Fab game with such totally new materials a few years from now and leave everyone else in the dust ( or silicon ! ). Selling the Fab now will certainly bring in R&D money for the Lab and perhaps a bright future.
Fishkill Fab is mostly development FAB ( R&D) and plus a little bit capacity for running older ASICs and about not much wafer capacity for a legitimate foundry business, besides global already has decent size fab in upstate NY.
Yorktown is a pretty big R & D center and not just for Semiconductors. Everything from Software, servers, devices, physical sciences,Mathematics is reserached there.
Silicon and semiconductor research can't really be done without a FAB like facility.
IBM was already making X86 based server (which we call comodity servers) which was made using latest Intel technology, which they sold to Lenovo, and these server sold at cheaper prize than servers based on IBM chips,
So it look like they can't sell their servers using generic chips.
IBM uses its Semiconductors Tech for its servers, that gives it advantge in high end servers, once they sell their semiconductor business this high end Server business will go as well.
Is the yellow flag you speak of by any chance GF itself since it is ownded by ATIC, an investment company owned by Mubadala Development Company, a wholly owned investment company of the Government of Abu Dhabi in the United Arab Emirates.
Apple does not make chips but has Asia build them. GF is the old AMD foundary division bought by the Middle East. So buying GF built Si you are putting money into the Middle East. Intel has about 80K US employees and over 100K worldwide. I love all the smack that people say about Intel, yet it is the only big player in the fab world that is a US company building in the US. There are fabs in Ireland and Isreal. Other than an old technology China fab, all new and state of the art chips are built in the US by Americans.
So for those that want to see Intel go bust someday, an Intel crash will make the GM debacle look like good days. GF is controlled by the Middle East, TSMC and Samsung are Asia. The dominent US chip manufacture is Intel. Who do you really want to do well and why???
As for IBM selling off, the government has at times stepped in to stop the transfer of technology to flagged buyers. AMD sold off their fabs, but one problem they have had is buy selling off their fabs, they have less ability to develop their owpn Si technology. If price was right, doesn't it help to have R&D to help further your chip designs? If AMD wanted to join an investment group for the future. They sold off fabs to GF. Gaining access to the art R&D might help position them to push their products moving forward. Who to partner with? Hard to say what group would come together with enough money. In the end its all speculation for IBM's buyer.
Google has the money - and they're trying to branch into robotics - how about them expanding into chip design? (just a random thought).
Google might be buy IBM fabs...they tried with Freescale and failed (but retained patents), they might try again...at some point they might need more business than search adevrstising that generates 90% of their revenue
@krisi: Google might be buy IBM fabs...they tried with Freescale and failed (but retained patents), they might try again
I think what Google wanted from Freescale was the patents. Google isn't really in the hardware business. There are things with the Google name on them, but Google itself doesn't make them. It gets them from folks who do make hardware in an OEM deal.
at some point they might need more business than search adevrstising that generates 90% of their revenue
If they do, hardware isn't the place to get it. Look at what it costs to build a fab, then look at what it costs to keep a fab updated with the latest process technologies, and last look at what you can make selling what the fab produces. There's a reason why the number of companies that actually own fabs is shrinking.
@DMCCunney...there are rumours that Google is getting into chip design...you would think they go fabless first...but who knows, maybe they can swallow some fabs too, I agree this is expensive and somewhat divergent to other things they are doing...but they are also getting into robotics big time, self-driving cars etc...sounds like hardware to me
Sounds like proof-of-concept prototypes to me. Google needs self-driving cars so that people stuck in traffic can surf the Internet and generate advert revenue for Google. I can't see them caring who makes the cars, as long as someone makes them. But someone has to prove the concept first, and Google has plenty of cash for R&D.
This seems to be a growing trend by companies to walk away from low margin but still profitable businesses. A few years ago a fellow level scientist at one of the major semicon vendors was bemoaning this fact that profitable businesses were being dumped because they did not meet some margin criteria. This is not a western trend alone. Wipro and HCL in India stopped PC manufacturing last year after having neen in this business since the mid 80s. Capacitor manufacturing for example is still a profitable business. Will involve a lot of blood and sweat to keep the business going but you can make a decent living out of it. But the apppetite for slogging it out seems to have gone unless there is an unreasonable payout at the end of the rainbow ! What is wrong with retiring with a couple of GM cars, a good size house and say a few million dollars in the bank ?
Now as a former CEO/CFO, I can understand the business rationale. But from a social perspective this seems more of an issue of lesser rewards for top management. I looked at the financial nos of some of these canned businesses and there is nothing particularly bad with them. They are not glamorous high margin businesses but if executive salaries were kept in the lower 6 figures, some opex trimming and leveraging the sales distribution channels, they can be run profitably. Anecdotal examples - Why does every senior exec who comes to India have to stay in the most expensive of hotels ? Some of these expense accounts can be mind blowing. This may be a drop in the bucket but this soon adds up. The credit scenario in the world is getting tighter and int. rates will be higher in the future so a lot of belt tightening will have to be done.
I am surprised that there is no alarm in the US govt. at manufacturing being gutted so easily. Wrt IBM, part of the problem is a complete lack of strategy in the past decade. powerPC coudl hav ebeen a good alternative to x86 but IBM blew it in a major way. There was absoluetely no discerable drive within IBM to evangelize Power.
I will close with another piece of data. TSMC when come to our campus for recruitment offers less than Social networking companies. The former position is in Taiwan and the later is in India ! No wonder the Taiwanese can survive in manufacturing !
I guess most of us are overlooking IBM's partnership/presence in Albany, NY (CNSE/university), where it has sizeable R&D going on, which can act as R&D facility for them in case they put their fabs for sale.
I'd say national pride and security are more than just emotional issues. They are fairly substantive and can be measured, often, in dollars--say the massive defense budget or the resources dedicated to homeland security. IBM is an important corporate resource for the nationa as a whole, and to lose this sector of its business would be a major blow--there's no question about it.