IBM Consolidates Microelectronics with GlobalFoundries and Invests In OpenPower Foundation and New Era Of Computing, such as a16-chip for neurosynaptic (brain-like) computer for cognitive computing. By Anne Phey

1. Read more:
http://annephey.blogspot.sg
Corporate Strategy:
Move To Value
IBM CEO Ginni Rometty’s shared with Fortune that the IBM corporate strategy is to
move towards higher value and differentiation.
 For decades, IBM has been synonymous with innovation, cutting-edge technology,
and cool research and developments that pushed the boundaries of what
computers were capable of doing. Today, the innovation shifts to create
breakthrough R&D innovations that will fuel the next era of computing systems.
 In line with the delivery of that strategy, IBM has announced that it will pay $1.5
billion to GLOBALFOUNDIRES to take over IBM Microelectronics, its chip-making
factories. According to an anonymous source, IBM will in return receive $200 million
worth of assets as part of the supply of chips, making the net deal value $1.3 billion.
IBM Moves To Value & Sells Microeletronics Division
 IBM will become a major customer for
GlobalFoundries, buying Power chips from the
manufacturing company for its own
mainframe and “scale-out” systems as well as
for next-generation storage systems. IBM will
continue to design high-end chips and sell
servers and supercomputers.
 The deal is expected close in 2015.
Page 1 of 8

2. Read more:
http://annephey.blogspot.sg
Corporate Strategy:
Move To Value
Who is GlobalFoundries?
 GLOBALFOUNDRIES is owned by the
Mubadala Development Co, the Abu
Dhabi government's investment fund
 It has been collaborating with IBM since
their inception in March 2009.
 GlobalFoundries was created in 2009
when Advanced Micro Devices (AMD)
sold its manufacturing operations to
Advanced Technology Investment Co.,
which is wholly owned by the
government of Abu Dhabi, a part of the
United Arab Emirates.Why GlobalFoundries?
 It is the world’s first full-service semiconductor foundry with a truly global footprint.
Launched in March 2009, the company has quickly achieved scale as the second
largest foundry in the world, providing a unique combination of advanced
technology and manufacturing to more than 160 customers. With operations in
Singapore, Germany and the United States, GLOBALFOUNDRIES is the only foundry
that offers the flexibility and security of manufacturing centers spanning three
continents.
Global Foundries was chosen as the world’s first
full service foundry with a global footprint
Page 2 of 8

3. Read more:
http://annephey.blogspot.sg
Corporate Strategy:
Move To Value
The World of Semiconductors
 According to Forbes’ contributor Roger Kay, there are only two foundries and one
integrated manufacturer that have the investment capabilities to undertake risk in
the semiconductor industry - Taiwanese TSMC, GlobalFoundries and Intel.
 Intel, the integrated manufacturer Intel fights a lonely battle, doing all its R&D
internally, building its own factories, making its own chips, and selling them to
customers who build systems.
Common Platform
 In contrast, the industry has Common Platform, an alliance
formed with IBM, Samsung, GlobalFoundries who picked
up AMD and Singapore’s Chartered Semiconductor and
an alliance potentially in British ARM for Qualcomm and
Apple.
 The alliance has great benefits of reduced cost,
technology development and physical risk.
 This means a serious threat to Intel and a key reason for
IBM to divest their x86 business.
Common Platform = IBM + Samsung + Global
Foundries => Threat to Intel
Page 3 of 8

4. Read more:
http://annephey.blogspot.sg
Corporate Strategy:
Move To Value
Consolidation & Future Collaboration
 As IBM consolidates the Microelectronics manufacturing with GlobalFoundries,
questions were raised as to whether this would be further divestment of the systems
business and why IBM would pay GlobalFoundries $1.5 billion in cash over the next
three years to take the chip operations off its hands.
Partnership: Consolidation & Collaboration
Cut loss from manufacturing & Focus on Research
 IBM needs “to narrow their focus, get their A-game on, and any distractions from a
core business perspective, such as this deal, need to be put in the rear-view mirror,"
FBR Capital Markets analyst Daniel Ives told Reuters. "From an IBM and investor
perspective, it takes one troubled area out of the core franchise.“
 In a 10-year partnership, GlobalFoundries will
supply IBM with Power processors in exchange for
access to IBM's intellectual property. That would
allow GlobalFoundries to access key chip making
technology and guarantee the chips IBM needs
for its systems, like mainframe, power servers and
its Watson data-analytics technology.
Page 4 of 8

5. Read more:
http://annephey.blogspot.sg
Corporate Strategy:
Move To Value
The Changing Economics Of Semiconductor Manufacturing
 The cost of making chips has risen, and semiconductor development is getting more
complex, making the business less viable. Besides using its own Power chips, IBM also
sold them to game console manufacturers like Sony, Nintendo and Microsoft. However,
IBM still lacks scale and despite generating $1.4 billion revenue, has $700 million loss in
the last year
 According to Ana Hunter, Vice President of Foundry Services at Samsung, putting
together a factory to make the next generation of semiconductors will cost about $10
billion. Globalfoundries will book around $10bn over the next year in capital
expenditures – which shows you just how expensive it is to compete in the chip building
side of the industry. It makes sense to consolidate the manufacturing with foundry to
pool investments and risk.
The Economics Of The Consolidation
 Matt Eastwood, an IDC analyst, said the deal makes
sense because of the changing economics of the
semiconductor manufacturing business. "The cost of
semiconductor manufacturing is going to continue to
increase, making it a business where scale will matter
more and more going forward…(GlobalFoundries) also
hopes that IBM's focus on growing the OpenPower
ecosystem will create new demand for semiconductor
manufacturing services.”
Page 5 of 8

6. Read more:
http://annephey.blogspot.sg
Corporate Strategy:
Move To Value
 By divesting the semiconductor
manufacturing business to
GlobalFoundries who can scale up and
build Power cores for a wider customer
base, IBM will also free up capital to be
reallocated to other areas. IBM will focus
on the research and design of high-end
chips, servers and super-computers. This
is part of their focus on enterprise-class
systems innovation.
IBM Divests In Manufacturing To Invest In
Systems & Research
 Arvind Krishna, General Manager of IBM's Manufacturing & Development said "Over
time, you will get the at-scale manufacturing that actually assures the longer-term
sustainability of these systems," he said.
 “This is another milestone in our journey to transform the IBM Systems and Technology
Group,” said IBM Senior Vice President, Tom Rosamilia. “The agreement focuses on the
strengths of each company. GlobalFoundries will drive continued leadership in scale
manufacturing becoming our premier supplier of semiconductor technology, and IBM
will continue to create breakthrough R&D innovations that will fuel the next era of
computing systems."
Page 6 of 8

7. Read more:
http://annephey.blogspot.sg
Corporate Strategy:
Move To Value
IBM’s Commitment to Systems
 The systems strategy is clear: “We will continue to be a leader in high-performance
systems, storage and cognitive computing, while continuing to invest in advanced
semiconductor R&D.” IBM’s research mission is unchanged -- to deliver technology
leadership that differentiates their systems today while continuing the leading edge
work to create the advanced semiconductor technologies of the future.” said IBM
Senior Vice President, Tom Rosamilia.
IBM Commits to OpenPOWER Foundation
and technology innovation
Over the past year, IBM has made bold decisions, steering its portfolio toward world class
systems and technology innovation. The company has
 deployed new cloud and mobile solutions for the mainframe;
 opened the Power architecture to more than 60 members through the OpenPOWER
Foundation to expand the use of the architecture;
 invested in software defined storage capabilities and high performance Flash;
 and announced investments in the next generation of chip technology,
 developed cognitive computing systems which can help process natural language
and unstructured data created by sensors and mobile devices, and
 speed up development of Watsons which is already making impact in areas like
personal medicine.
Page 7 of 8

8. Read more:
http://annephey.blogspot.sg
Corporate Strategy:
Move To Value
 "Given that all the design, all the software, all the operating systems, all of the
firmware and all of the other system advantages that we put in remain with IBM, my
basic answer would be it does not impact our mainframe, or power system or our
storage clients at all," he said.
OpenPOWER Foundation & IBM Research Labs
research on POWER chips
 The highly regarded IBM Research labs, which
boasts Nobel Prize winners on staff, will also
continue to rethink and reshape computer design.
IBM in July announced it would pour $3 billion over
five years into hardware research that could lead
to quantum computers and cognitive systems that
mimic brain functionality. A brain-like chip was
announced in August, and the researchers have
made progress in investigating chip materials
beyond silicon.
 The OpenPOWER Foundation members are developing their own Power chip for
server applications. Founding members include Google, Samsung, Tyan, nVidia,
Mellanox. Google has also shown an interest in Power architecture, said Richard
Dougherty, founder of analyst firm Envisioneering Group. While its large-scale data
centers run mostly off x86-based systems, Google has also designed a Power server
board.
This is a 16-chip version of IBM’s neurosynaptic (brain-like) computer
Page 8 of 8