After X86 servers, is IBM gearing up to sell its chips business too?

After X86 servers, is IBM gearing up to sell its chips business too?

Summary: IBM could wriggle out of semiconductor manufacturing after several challenging quarters for its hardware business.

TOPICS: IBM, Processors

IBM has reportedly hired Goldman Sachs to search out potential buyers for its semiconductor business.

Claims of its search for buyers comes from the Financial Times, quoting sources familiar with the move, which could involve a complete sale of, or finding a joint venture partner for, its semiconductor business.

News of the possible sale comes just two weeks after IBM agreed to sell its x86 server business to Lenovo, after announcing it would be turning its focus to cloud and Watson-based cognitive computing.

The FT notes that there are only a few companies in the world that would be in the position to buy IBM's chip business, which the company has spent billions on over the years in order to develop its manufacturing capacity. Rivals that could acquire the business include Intel, Samsung and chip manufacturing groups GlobalFoundries and TSMC.

Besides building chips for its own servers, IBM does third-party contract manufacturing and used to supply processors for Sony's and Microsoft's gaming consoles. However, both companies have since moved to AMD's chips, according to the Wall Street Journal.

According to the paper, research company Bernstein forecasts the unit's estimated revenue will fall from last year's $1.75bn to $1.45bn this year, maintaining consistent pre-tax losses of $130m over both periods.

OEM revenues from IBM's chip business were down 33 percent year on year when it reported its fourth quarter 2013 earnings. The unit sits within IBM's systems and technology hardware division, which has seen a tough few quarters with Q4 revenues down 26 percent from a year ago to $4.3bn.

That came off the back of a tough third quarter for IBM's hardware business, particularly in China where hardware revenues declined 22 percent from a year ago.

IBM had not responded to ZDNet's request for comment at the time of publication.

More on IBM

Topics: IBM, Processors

Liam Tung

About Liam Tung

Liam Tung is an Australian business technology journalist living a few too many Swedish miles north of Stockholm for his liking. He gained a bachelors degree in economics and arts (cultural studies) at Sydney's Macquarie University, but hacked (without Norse or malicious code for that matter) his way into a career as an enterprise tech, security and telecommunications journalist with ZDNet Australia. These days Liam is a full time freelance technology journalist who writes for several publications.

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  • So what happens to POWER?

    AIX developers and users undoubtedly want to know.
    John L. Ries
    • PowerPC RISC Architecture Ain't Going Anywhere!

      Only the fabrication business. They are basically saying they want to be just a Design House like ARM and AMD now!

      So they'd most likely be moving to Global or Samsung as fellow members of Common Platform Alliance for their chip fabrication needs. They really don't need that much with Sony PS 3 on at it's end of life cycle coming soon. The outside chip designers utilizing IBM's fabrication plants for their chip fabrication have plenty of their competitors to choose from.

      But PowerPC platform chip and process design and their #1 R&D and Patent departments won't simply disappear if that's what you mean! ......they've recently signed some major contracts with DARPA and stuff dealing with Watson Cloud Services. Where profit margins are a whole lot better than hardware, like x86 server market and chip fabrication becoming increasingly more competitive. Samsung is now the leading chip Wafer producer over even Intel and TSMC!

      They are expected to move ahead of Intel in revenue here soon in chip production alone and IBM has not moved into spending nearly as much as either Intel or Samsung on CAPeX!
      • You might recall...

        ...that Compaq/DEC sold its foundry to Intel shortly before it announced it was abandoning Alpha in favor of Itanium (it then sold out to HP, which confirmed this highly questionable move; HP should have dumped both PA-RISC and Itanium in favor of Alpha). I think IBM would be foolish to abandon POWER, but computer companies have done foolish things before.

        But what you say reassures me somewhat. Thanks.
        John L. Ries
  • And then there were 2 .....

    2 companies orbiting the Sun that do advanced "bulk silicon" process development.

    My money is on the Sheikh of Abu Dhabi (Mubadala Capital).
    • Good Guess!

      But more likely selling chip fabrication business to either Global or Samsung as their own Common Platform Alliance Partners. Since right now IBM SoI Gate First HKMG process technology is on the cusp of extinction. Even Common Platform Alliance is moving to Gate Last HKMG fabrication and although Intel still holds a license to SoI (silicon on insulator) they are now primarily using their own technologies too.

      So we're really only talking about their fabrication plants being sold. Apple was considering buying East Fishkill plant themselves last year to get away from Samsung. But that's highly unlikely to happen, since Samsung is IBM's #1 partner on so many fronts in both chip design and fabrication!

      Global Foundries would be the most likely candidate for the that purchase. And besides when the IBM deal fell through for Apple last year, Apple was forced to pay higher prices to Samsung on chip production, because TSMC isn't nearly as advanced only licensing Intel's fabrication process! push comes to shove.... most likely both Samsung and Global will form a Joint venture, to buy their plants, in order to keep IBM's present customers happy!
      • Silly question

        Are you an IBMer, and if so, are you speaking on behalf of your employer?
        John L. Ries