While some companies have the luxury of selling off sections of their enterprise for large sums and much enjoyed profits, such as Motorola’s Mobility sale to Google, others have to spend money to stop losing money. Revenue for the fourth quarter dropped 4% to $22.4 billion, which is too short for comfort from the analyst predicted $23.4 billion. IBM chief executive Virginia Rometty had this to say about the dismal earnings report. “We are disappointed in our performance. We saw a marked slowdown in September in client buying behavior, and our results also point to the unprecedented pace of change in our industry.” Their earnings report amounted to an earnings per share of just $3.68, again falling far short of analyst expectations.
IBM has announced
That it will be paying GlobalFoundaries $1.5 billion in cash over the next few years to acquire its microelectronics business, and has taken a $4.7 billion pre-tax charge for the third quarter. These numbers were reported before the market opened on Monday and the companies stock was down just under 7% Monday morning. GlobalFoundaries has it’s own interesting history regarding the separation of designer and manufacturer such as IBM is doing right now. GlobalFoundaries was the product of Advanced Micro Devices (AMD) spinning off its chip-manufacturing department in 2009, choosing to keep design in house, but outsource the actual manufacturing process. IBM’s microelectronics business has accounted for an estimated $2.5 billion in revenue for 2013, but lost an estimated $500 million for the tech giant. IBM revenue overall last year was just under the $100 benchmark. While investors are certainly not thrilled at IBM paying GlobalFoundaries to take the chip business of its hands, IBM has assured that it is not seeking to exit the semiconductor market completely. Last July, IBM announced that it would be investing $3 billion over the following five years directly for semiconductor research and development. Their interest, they have said, is to design the chips with their own new designs, and then hand over the production of the chips to contract manufacturers the likes of GlobalFoundaries. So in short, IBM feels it either cannot afford to, or would not benefit substantially from manufacturing the chips they design in house. This choice however would certainly lose them a certain level of control over both finished design as well as the all-important pricing of each chip. This is the second time in 2014 that IBM has spun off a section of its company, and it appears that they have been doing a bit of a reverse Frankenstein, attempting to shed pounds to stay afloat. In January IBM sold a percentage of its server sector to Lenovo for $2.3 billion, which is a bit of a reunion seeing as Lenovo purchased the IBM PC business ten years ago. Chief Executive Rometty has said that IBM is looking to focus more on upcoming modern technology like cloud tech, data and analytics, social, mobile and security. IBM Senior VP John Kelley said, “This acquisition enables IBM to focus on fundamental semiconductor and material science research, development capabilities and expertise in high-value systems.” computer repair