
IBM Paying Globalfoundries $1.5B to Take Unit in Retreat from Chips - colmvp
http://www.bloomberg.com/news/2014-10-19/ibm-agrees-to-pay-globalfoundries-1-5-billion-to-take-chip-unit.html
======
bane
I think this story is a really good object lesson for the typical HN reader
that there are mind-bogglingly huge businesses out there and they don't
operate like startups.

IBM employees 61x the number of people as Facebook and makes almost 13x as
much revenue.

If you can't figure out why IBM works and what it does, you need to keep
studying how businesses work because you'll only ever understand small
startups and be missing out on a big picture.

Even if all you ever want to work in are small startups, knowing how big
businesses think can be really important to getting your company sold to one
of them.

~~~
wtbob
> IBM employs 61x the number of people as Facebook and makes almost 13x as
> much revenue.

The interesting thing to me is the ratio between those two numbers: IBM
employs 4.7 people to get the same revenue Facebook gets with 1 (an even
better comparison, of course, would be between payrolls and revenues, but I
couldn't quickly find the payroll statistics for the two).

~~~
benologist
Why is this interesting vs not a particularly suitable metric for comparing
them?

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psuter
This may answer the natural question of "why not just shut it down, rather
than pay to have it taken over":

    
    
        > In a 10-year partnership, Globalfoundries will supply IBM with
          Power processors in exchange for access to IBM’s intellectual property
    

I suppose it's one way to cut losses while not sacrificing short-term access
to the technology; after all, 1+ billion is "only" one year of losses,
according to the article.

An intriguing move in any case. I wonder if anyone can point to previous
examples of a company paying to have a division acquired?

~~~
greglindahl
It's very common for companies selling divisions to sign pre-purchase
agreements. This article's title and tone are at odds with how normal this
particular deal is.

~~~
ghshephard
Thanks - that puts this in a new light. Based on what you are saying, this
isn't purely "IBM Paying Someone $$$ to take off money losing division from
their books" as it is, "IBM purchasing Processors, Chips, from Global Foundry,
cost of such products being the net-worth of their manufacturing/engineering
division + $1.5B"

------
pinkyand
IBM had a unique process call silicon-on-insulator that gives you something
like an extra step in moore's law with regards to power and speed(but not
cost). They also had their EDRAM technology , which is much more efficient
memory type for cache.

This enabled them to build a huge(100MB) and fast(3TB/sec) L3 cache in their
processors. This is something that could give a huge boost for many kinds of
applications, for example databases d\and machine learning.

While intel has some edram capability, i haven't seem them release an
integrated edram with the processor, not sure why.

And let's not forget, IBM now licenses the design for it's beast of a
processor, the power8 ,in a modular format, enabling chip companies to easily
add accelerators and innovate.

So it would be very interesting what intel's competitors will build with all
those capabilities. I'm getting the popcorn.

~~~
WallWextra
I do believe SOI has some cost disadvantage, and this contributed to its
unnpopularity. The POWER8 chips are huge and probably can't be made cheaply,
or to consume sane amounts of power. IBM would have to take a very thin cut to
compete with Intel.

~~~
pinkyand
The cheapest node today and for a long time is 28nm. But there are many
applications where people are willing to pay more for performance, like
processors.

Second there's a debate whether SOI is more expensive once it reaches volume.
The claim vary between 10% more expensive , to cheaper , to something in the
middle. We'll see.

------
WallWextra
It seems like this could pose some problem for the DOD, since IBM was the only
trusted foundry with a cutting-edge process for logic. Presumably they don't
want the government of Abu Dhabi fabbing chips for them.

~~~
Padding
Do you have a source for this? Afair, it was always Intel that was touting
"made in US" on its marketing slides..

~~~
_delirium
The majority of Intel's fabs are in the U.S., but they don't seem to be part
of the DoD Trusted Foundry program. I'm not sure if there are barriers to them
being certified, or if they just aren't interested.

The current list:
[http://www.dmea.osd.mil/otherdocs/AccreditedSuppliers.pdf](http://www.dmea.osd.mil/otherdocs/AccreditedSuppliers.pdf)

~~~
frankchn
I believe that list is for fabs who can supply the DoD with custom/proprietary
chips (i.e. with business models similar to TSMC or Samsung but for defense
related products). Intel has not been in that line of business so there is no
point in joining the program.

~~~
WallWextra
They did recently announce two fab customers, an FPGA manufacturer and then
something else that is also low volume and obscure. So maybe the DoD can make
it worth their while.

~~~
_delirium
As of mid-2013 they had five fab customers [1]: Achronix, Tabula, Netronome,
Microsemi, and Altera.

[1] [http://www.oregonlive.com/silicon-
forest/index.ssf/2013/07/i...](http://www.oregonlive.com/silicon-
forest/index.ssf/2013/07/intel_dabbles_in_contract_manu.html)

------
Afforess
Desperate to meet that EPS number for the 2015 roadmap, apparently.

~~~
x0x0
This whole thing reeks of financial engineering; playing games shifting
numbers from one bucket to another. After all, if ibm still needs chips -- and
they're paying $1.5B, plus a 10 year contract -- how does really make sense?

~~~
frankchn
Perhaps IBM figured that they don't need that many chips to warrant its own
fab, which are expensive to maintain/upgrade to keep up with cutting edge
process technologies.

I can believe that it made more financial sense for someone else to actually
make the chips it wants (like nVidia, Apple and almost everyone else besides
Intel and Samsung) than running its own fab in the long run due to economies
of scale involved in fabs.

------
ableal
I was reminded of the "Real men have fabs" line and did a cursory search.
Which hit a 1994 piece debating the issue, noting the downsides:

[http://www.businessweek.com/stories/1994-04-10/real-men-
have...](http://www.businessweek.com/stories/1994-04-10/real-men-have-fabs)

------
jmspring
Research, chip capacity, other divestments. What is IBM these days? At a
certain point, the name should just be retired and committed to the annals of
history. At least Sun and SGI are (mostly) not brought up in any fashion
related to their prior glory days.

~~~
broodbucket
I think you're greatly underestimating how large and successful IBM is. IBM is
enormous in enterprise IT software and services. You just don't hear about it
on places like HN where the focus is on consumer/startup stuff.

~~~
touristtam
* Thinkpad and personal computer division sold to Lenovo * HDD division sold to Hitachi (now Western Digital) * Server division to be sold to Lenovo * Cell Processor production halted

In the meantime the IBM strategy seems to focus more and more on online
services as the latest batch of acquisition seems to be mostly software and
online services, for a complete disinvestment in hardware:

* Kenexa - software solution for HR * SoftLayer Technologies - hosting/cloud * Lighthouse Security Group - security around cloud hosting solution

The only significant hardware purchase seems to be of Texas Memory Systems, a
SSD manufacturer. Which makes sense for server oriented business.

~~~
bane
And yet they still do ~$100 billion in business per year. About 12.5 _times_
the amount Facebook does, a company that can claim something like 1 out of
every 6 people on the planet as a user.

They also employ 431,000 people, or about 61 _times_ the number of people
Facebook keeps alive in the global economy.

------
baronfel66
Wooo. Maybe this will help GF provide AMD with process tech that isnt super
old.

~~~
higherpurpose
Agreed. AMD _desperately_ needs to adopt cutting edge processes, even if it
costs them 50 percent more per chip than it would if it would wait a year or
longer.

It's bad enough that it doesn't seem to be able to outcompete Intel in CPU
design anymore, but it's making the problem worse by not adopting a modern
process, too (as modern as it can be, since Intel is already ahead of other
foundries - although the gap will shrink a lot with the next-gen FinFET
processes). That especially made it _impossible_ for AMD to enter mobile or
even ultrabooks, with AMD's old processes and higher power consumption.

Fortunately, 1) GF is apparently licensing Samsung's 14nm FinFET process, and
2) there's a tiny rumor that AMD will be using it by the end of next year,
which could be very early in the process' life.

AMD is preparing to announce new CPU micro-architectures for both x86 and
ARMv8 in a couple of years. If it actually puts them on a cutting edge
process, and with a big push on the branding/PR side, the company might start
to improve its chips' image (and sales).

------
ForHackernews
IBM has sold off their PC business, they sold off their mainframe/server
business; now they're selling off their chipmaking business.

What, exactly, does IBM think that its core business is? Making Jeopardy-
playing AIs?

~~~
Moto7451
They still make mainframes. They sold off everything hardware wise except for
that. Per the article they signed an 10 year agreement with GF to supply POWER
chips.

IBM is a software, service, SAAS, PAAS, and consulting company based on their
website.

~~~
acangiano
IAAS too (IBM SoftLayer).

------
graycat
I spent 9 years at IBM and learned that, indeed, IBM does listen to its
customers and try to give them what they want. But I also learned an unwritten
rule: Customers should not call on a Wednesday because that ruins two
weekends.

At one point, Gerstner said "IBM is the most inwardly directed, process
oriented, arrogant company" he ever saw. Well, likely it still is.

Once I got an offer from IBM but turned it down, but with the offer came some
advice: "You might think that IBM is an electronics company or a computer
company, but you'd be wrong. IBM is a marketing company. IBM would get into
the grocery business tomorrow if they saw a good business opportunity.

You might think that in IBM research comes up with new ideas, manufacturing
turns them into products, and marketing sells them. Then you would have
everything exactly backwards. Instead, marketing sees what they can sell at a
profit and has manufacturing make it, and manufacturing goes to research if
they need help.

What a product sells for is what the customer is willing to pay, and that has
nothing to do with what it cost to make the product. In good cases, the profit
margin is large, but at times it may even be negative."

Once I met with some guys who were doing some data analysis for the CEO and
top level managers. Their explanation was that long the top managers would
meet each year, announce their great results, predict even better results for
the next year, and then beat those predictions. Then, for no obvious reason,
at the annual meetings the top managers were not meeting their predictions,
and that went on and on, for years. The only explanation was that God had
ceased to smile on IBM."

Sure, IBM could have done Google. IBM Research was long just awash in people
who could have done Google as a fast toy off the backs of their hands. But had
they done so, manufacturing and marketing would have ignored the results.
Marketing just would not have seen any big, traditional IBM customers in bank
and insurance company back office paper pushing asking for a Google. Instead,
a Google-like product in Research would have had to have been championed by
the CEO or just left to die -- no one else with any product authority would
ever touch any such thing.

Google? Well, that's about the Internet. Okay, early on the Internet was
ARPANet. Later it was NSFNet, and then, or about then, it was run for NSF by
IBM. So, right, in the early days of the Internet, IBM literally was running
the whole thing. Or they had the ball in their hands and an open field to the
goal line but all by themselves fumbled the ball, dropped the ball, tripped
over the ball, fell on the ball, lost the ball, and ended up face down in the
mud. Bill Gates, Larry Ellison, Page and Brin, Zuck, Bezos, etc. picked up the
ball.

