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IBM Looking To Sell Chip Manufacturing Business

IBM Looking To Sell Chip Manufacturing Business

U.S. technology giant, International Business Machines (NYSE: IBM) has appointed Goldman Sachs (NYSE: GS) to help it explore the possibility of selling its semiconductor manufacturing business, according to a report in the Financial Times on Thursday.

Sources told the newspaper that in lieu of an outright sale, IBM might also seek a partner for a joint venture for its chip operations.

The significance of such a move was not lost on Wall Street. Moor Insights and Strategy analyst Patrick Moorhead said, “It is a step away from their heritage. This is probably their biggest strategic realignment for 20 years.”

IBM recently announced the sale of its low-end server business to Lenovo for $2.3 billion. This after the company also exited the PC business several years ago to focus on analytics, cloud computing, and software.

The sale of the chip division would be significant, not just because of the historical connection, but also because IBM has invested billions in that technology over the years.

Related: IBM Bets $1 Billion on ‘Watson’

Potential buyers, Moorhead said, might include Advanced Technology Investment subsidiary, Global Foundries or TSMC.

Other, less likely suitors could include rival chipmakers Intel and Samsung.

It was unclear what impact a sale of the semiconductor division would have on systems such as IBM’s Watson super computer and the potential move was a surprise to Evisioneering analyst, Rick Doherty who said, “I’d be shocked – there would be no Watson without [IBM’s] Power chips.” Doherty added, “Take away the Silicon part, and IBM may not be the tech giant it is 10 years from now.”

A source told The Wall Street Journal that although IBM may seek a buyer for its chip-making division, the company does plan to maintain its chip-design capability. This reinforces the notion that IBM wants to shed capital-intensive manufacturing operations.

In the nine months ending September 30, 2013, IBM chip sales fell almost three percent. The company has been making fewer chips for external customers, having lost video game console business from Sony and Microsoft when those companies shifted their newest machines to Advanced Micro Devices chips.

IBM does still manufacture chips for Nintendo’s Wii systems.

At the time of this writing, Jim Probasco had no position in any mentioned securities.


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