IBM Reports Quarterly Profit Plunge on Disposal of Chip Unit

The computer services giant said that it was paying $1.5 billion in cash to semi-conductor experts GlobalFoundries to take over the chip unit.

IBM also published results for the third quarter, showing that net profit had fallen by 99.6 percent from the equivalent figure last year to $18 million, down from slightly more than $4.0 billion a year ago.

Although the cash payments will be made over three years, IBM is taking a $4.7 billion pre-tax charge in its financial results for the third quarter of 2014.

This covers the cash payment and all related charges and costs for getting rid of the costly unit.

Under the deal, GlobalFoundries will purchase and operate existing IBM semiconductor manufacturing operations and factories in East Fishkill, New York and Essex Junction, Vermont.

GlobalFoundries will emerge from the move as the largest semiconductor technology manufacturer in the US Northeast.

As part of the agreement, GlobalFoundries will gain thousands of patents and other intellectual property, making it the holder of one of the biggest semiconductor patent portfolios worldwide.

It will also become IBM's exclusive provider of semiconductor technology for servers for the next decade.

GlobalFoundries will obtain IBM's commercial microelectronics business, which includes ASIC and specialty foundry, manufacturing and related sales and operations.

With this sale, IBM will turn a page of its history and focus more narrowly on its service activities.

"The agreement expands our longstanding collaboration, which began when GlobalFoundries was created in 2009," IBM senior vice president and director of research John Kelly said in a statement.

"This acquisition enables IBM to focus on fundamental semiconductor and material science research, development capabilities and expertise in high-value systems, with GlobalFoundries' leadership in advanced technology manufacturing at scale and commitment to delivering future semiconductor technologies."

IBM currently is one of the last major companies in its sector to have a hold on the entire production cycle, from conceptualization to manufacturing and commercialization.

But in recent years, the group has gradually shed much of its other industrial activities to focus on service instead.