❗Let's close the gap: We still need your help to raise $40,000 by April 1. Donate now

IBM will no longer make its own chips

David Weinberg Oct 20, 2014
HTML EMBED:
COPY

IBM will no longer make its own chips

David Weinberg Oct 20, 2014
HTML EMBED:
COPY

IBM just announced that it’s no longer making its own chips, a part of its business that it was losing money on. IBM is paying $1.5 billion to GlobalFoundries Inc. — a company based in Santa Clara, California but owned by an Abu Dhabi sovereign wealth fund  to take over its the division.

GlobalFoundries has a lot to gain by acquiring IBM’s chip division. The company will get access to IBM’s engineers and intellectual property.

“GlobalFoundries will also pick up some semiconductor process technology expertise that hopefully makes the company more competitive going forward,” says Needham analyst Quinn Bolton.

Fewer and fewer tech companies make their own chips. Apple, Dell, Qualcomm all rely on outside manufacturers. It makes sense economically because chip companies have the advantage of scale, says Gartner analyst Sergis Mushell. “If you are making ten of something vs a million of something from a price point perspective it’s more attractive when you make millions.”

The largest contract chip maker, Taiwan Semiconductor Manufacturing Company, quadrupled its capital spending in the last five years from $2.5 billion to $10 billion. If you are a company like IBM you have to look at those numbers and ask yourself, does it make sense to take a loss in chip making when you could just buy them from someone else?

IBM’s answer as of today is no, it doesn’t.

There’s a lot happening in the world.  Through it all, Marketplace is here for you. 

You rely on Marketplace to break down the world’s events and tell you how it affects you in a fact-based, approachable way. We rely on your financial support to keep making that possible. 

Your donation today powers the independent journalism that you rely on. For just $5/month, you can help sustain Marketplace so we can keep reporting on the things that matter to you.