by Timothy McQuiston Vermont Business Magazine IBM (NYSE: IBM) and GLOBALFOUNDRIES today announced that they have signed a Definitive Agreement under which GLOBALFOUNDRIES plans to acquire IBM's global commercial semiconductor technology business, including intellectual property, workers and technologies related to IBM Microelectronics, subject to completion of applicable regulatory reviews. IBM will pay GLOBALFOUNDRIES $1.5 billion and in return receive some service contracts. The deal includes the Vermont plant in Essex Junction and essentially all of its employees. Governor Peter Shumlin said that he has spoken with GLOBALFOUNDRIES officials and they have told him they plan to keep the plant and employees as is. GLOBALFOUNDRIES will also become IBM's exclusive server processor semiconductor technology provider for 22 nanometer (nm), 14nm and 10nm semiconductors for the next 10 years.
"This is good news for Vermont," the governor said at a packed press conference in Burlington. He said he spoke at length with leadership of both companies at about 9 pm last night. He said he would meet with GLOBALFOUNDRIES and IBM officials today at the Essex Junction plant and they would also hold a town meeting-style information session with employees. Shumlin said GLOBALFOUNDRIES has committed to staying in Vermont, investing and growing the facility here and maintaining the workforce (estimated at 4,000 local workers; IBM does not release actual employment numbers.)
The governor said he looks forward to working with a company whose core business is chip making, unlike with IBM where it represents only about 1 percent of revenues and is no longer part of its core business.
IBM has reduced employment substantially worldwide, including cuts totaling about 600 in the last two years, and had been looking to unload its entire semiconductor business. It reportedly offered to transfer the business to GLOBALFOUNDRIES and give its rival $1 billion in cash. According to national reports, GLOBALFOUNDRIES wanted $2 billion. This agreement suggests they split the difference.
However, the stock market was not impressed as it means IBM will have to take a large charge against profits. Shares closed at $182 on Friday and fell on Monday following the news of the sales to $168.96, down $13.09 (7.19%) as of late Monday.
Governor Shumlin takes a question Monday morning at a press conference held at the GBIC/LCRCC offices in Burlington. VBM photos.
Governor Shumlin early Monday issued the following statement early this morning on the planned sale: "IBM announced this morning that it plans to sell its semiconductor production business, including its facilities in Vermont, to GlobalFoundries, a company with a strong track record of performance in semiconductor manufacturing. GlobalFoundries plans to maintain the workforce and continue operations in Vermont, good news for the talented Vermonters employed by the plant and for our whole state.
"IBM has been a part of the Vermont fabric for decades, driving economic development and innovation. But we have felt the uncertainty regarding IBM's future in Vermont for the last several years, as its business model has changed.
"That is why it is very good news for Vermont's long-term future that IBM's facilities here will be acquired by GlobalFoundries, a successful and growing chip manufacturing company that views our highly-skilled workers and advanced R&D and manufacturing facilities as important to its strategic growth. We have learned in recent weeks that business at the plant is strong, and the plant is hiring more workers to meet demand. We expect that demand to continue and strengthen under GlobalFoundries.
"I have spoken with leaders from both IBM and GlobalFoundries, and appreciate that GlobalFoundries plans to continue employment, investment, operations in Vermont. The transaction is subject to federal approvals and will take some months to close. I am very confident that IBM and GlobalFoundries will partner with the State of Vermont to make this acquisition positive for our workforce and our economy. I have told them that I will help make this a successful transition, and am committed to forging a strong Vermont partnership with the plant's new owner. While any acquisition of this magnitude will bring about change, I am confident that Vermont will not just survive the transition to GlobalFoundries but will thrive.”
Among the several speakers was Frank Cioffi, president of the Greater Burlington Industrial Corp. GBIC led the effort to bring IBM to Vermont in the first place in 1957.
Of GF's future in Vermont, he said, "We're really optimistic." He anticipates GLOBALFOUNDRIES investing and growing the local operation.
"What we do here in Essex they don't do anywhere else in the world," he said. Among those things is capturing the cell phone chip business and the R&D that goes into analog chips and the US Department of Defense business.
This could be an issue going forward because the Vermont plant is a "trusted foundry" for the US government, which means, among other things, that it's a secure site. However, GLOBALFOUNDRIES is ultimately owned by the Emirate of Abu Dhabi and US DOD work has to be done by a US company that has achieved "trusted foundry" status. The governor said he believes that the security issue will be worked out. He pointed out that GLOBALFOUNDRIES is based in California and is a US company, even while they have foreign investment. He said Senator Patrick Leahy (D-Vermont) will work to ensure that the new owner will meet those requirements to keep that important designation.
Frank Cioffi of GBIC has been the lead development official dealing with IBM in recent years. GBIC also led the way in bringing IBM to Vermont in the 1950s. Behind him are Economic Development Commissioner Lisa Gosselin, Secretary Pat Moulton, George Tyler from Essex Junction, GMP's Mary Powell, Mayor Weinberger, Lieutenant Governor Scott, Speaker Shap Smith and Governor Shumlin.
Cioffi said there is reason to be optimistic because the site is secure and the infrastructure already built. The plant has been hiring to keep up with business, he said. Plus, while IBM's System & Technology Group has been struggling for several years, that is not the case in Vermont.
"We have always been profitable here," Cioffi said.
With Shumlin at the press conference were his top economic development staff, including Commerce Secretary Pat Moulton, Administration Secretary Jeb Spaulding, and Labor Commissioner Annie Noonan. Also there were Tom Torti, president of the Lake Champlain Regional Chamber of Commerce, Burlington Mayor Miro Weinberger, Max Levy chairman of the Essex Town Selectboard and himself an IBM employee, his counterpart George Tyler from the Village of Essex Junction, Speaker of the House Shap Smith, Lieutenant Governor Phil Scott, Lisa Ventriss, president of the Vermont Business Roundtable, Mary Powell, CEO of Green Mountain Power, and several state legislators.
Torti called the announcement "great news." He said, "The mystery is over. This is a huge relief." Now begins the process of moving forward with GLOBALFOUNDRIES and seeing how the Chamber can help. One of the big issues has been affordability. Chittenden County is an expensive place to live, which can and has made it difficult to recruit employees from out-of-state.
Betsy Bishop, president of the Vermont Chamber of Commerce, called it "good news" but was more cautious in her assessment. She was wondering about the commitment GLOBALFOUNDRIES has to Vermont going into the future. But she said the next step for her statewide organization was to see what it could do to help the newcomer succeed here.
Pat Moulton, who has served in the state Commerce Agency in many capacities over many years, until ascending to the top spot earlier this year, said she and her department would also do what is needed to keep the plant thriving. "We're here to help," she said.
Two ongoing, nagging issues have been the failure of to complete the Circumferential Highway, which would connect the IBM plant directly to I-89, and the cost of electricity.
Shumlin said the Circ, which had been on the books for 30 years, was never a make-or-break deal for IBM, despite much debate, often heated, about that issue over the years. What the plant needs, he said, is a good transportation plan. He said his administration is working on that now.
Mary Powell said that IBM is Green Mountain Power's largest customer. She said a deal was approved by the Public Service Board earlier this year that would not only reduce rates for its customers overall, but also stabilized rates for IBM. She said every other state in New England has seen double-digit rate increases.
Senator Patrick Leahy, who in his powerful position in the Senate has steered many substantial contracts IBM's way, said in a statement: "Vermont has always had a special relationship with IBM. While this marks a new chapter for the plant, I appreciate that GlobalFoundries recognizes that the most valuable asset they are acquiring is the talented workforce in Essex. These are some of the most highly skilled workers in the entire nation, and I remain committed to working with them and the new ownership to keep an active and vibrant plant as part of Vermont’s economic landscape."
Phil Scott, in prepared remarks, said: “As we wait for exact details on what the sale of the IBM Essex Junction plant means for Vermont, our top priority must be the well-being of the thousands of employees – and the Essex Junction community -- whose futures were in limbo. Today’s news provides some much-needed certainty after months of questioning. It is my sincere hope that GlobalFoundries will keep these valuable, high-paying jobs here in Vermont. But as we know all too well, the devil is in the details, and I stand with others, ready to help in any way I can, and will do whatever is in my power to impress upon the plant’s new owners how critical it is that those jobs remain here and continue to contribute to Vermont’s economy.
“We must also learn from the past and partner to assist companies such as this in growing and succeeding in Vermont. It is my belief that we, collectively, need to establish policies in order to make Vermont’s business climate more conducive to growth for large-scale employers such as GlobalFoundries and IBM. I look forward to working in conjunction with other state leaders to ensure that’s our state’s business future is on more solid ground.”
Shumlin said that he will immediately appoint an economic development and infrastructure advisory team, including relevant state agencies and partners in the private sector with deep experience in statewide economic development and commercial transactions, to work with the companies, the federal delegation, the Legislature, and others to evaluate ways the state can ensure a positive transition to GlobalFoundries ownership. They will review the Vermont–specific aspects of the IBM/GlobalFoundries deal and help the Administration plan, negotiate, and implement Vermont’s response to the transaction, including review of infrastructure, labor force, municipal, state economic development, and permitting issues that may be implicated by the proposed transaction. The team will also recommend other strategies to attract and retain high–paying technology sector jobs at the IBM Vermont facilities, including potential use of the Vermont Enterprise Fund.
IBM has been under substantial pressure from shareholders to increase profits. It also has been missing revenue targets for over two years.
Phil Scott works a control panel in 2012. Courtesy photo.
IBM will reflect a pre-tax charge of $4.7 billion in its financial results for the third quarter of 2014, which includes an asset impairment, estimated costs to sell the IBM microelectronics business, and cash consideration to GLOBALFOUNDRIES. The cash consideration of $1.5 billion is expected to be paid to GLOBALFOUNDRIES by IBM over the next three years. The cash consideration will be adjusted by the amount of working capital which is estimated to be $200 million.
The transaction is subject to the satisfaction of regulatory requirements and customary closing conditions.
The agreement, once closed, enables IBM, it said in a statement, to further focus on fundamental semiconductor research and the development of future cloud, mobile, big data analytics, and secure transaction-optimized systems. IBM continues its previously announced $3 billion investment over five years for semiconductor technology research to lead in the next generation of computing. GLOBALFOUNDRIES will have primary access to the research that results from this investment through joint collaboration at the Colleges of Nanoscale Science and Engineering (CNSE), SUNY Polytechnic Institute, in Albany, NY.
As part of this Agreement, GLOBALFOUNDRIES will gain substantial intellectual property including thousands of patents, making GLOBALFOUNDRIES the holder of one of the largest semiconductor patent portfolios in the world. GLOBALFOUNDRIES also will benefit from an influx of one of the best technical teams in the semiconductor industry, which will solidify its path to advanced process geometries at 10nm and below. Additionally, the acquisition opens up business opportunities in industry-leading radio frequency (RF) and specialty technologies and ASIC design capabilities.
"This acquisition solidifies GLOBALFOUNDRIES' leadership position in semiconductor technology development and manufacturing,” said Dr Sanjay Jha, CEO, GLOBALFOUNDRIES. “We can now offer our customers a broader range of differentiated leading-edge 3D transistor and RF technologies, and we will also improve our design ecosystem to accelerate time-to-revenue for our customers. This acquisition further strengthens advanced manufacturing in the United States, and builds on established relationships in New York and Vermont.”
“The Agreement expands our longstanding collaboration, which began when GLOBALFOUNDRIES was created in 2009, and reflects our confidence in GLOBALFOUNDRIES’ capability,” said IBM Senior Vice President & Director of Research Dr. John E. Kelly III. “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. We are grateful for the leadership and investments by the states of New York and Vermont in supporting the semiconductor industry.”
This acquisition bolsters semiconductor manufacturing and technology development in the United States. GLOBALFOUNDRIES has robust capital expenditure plans of approximately $10 billion in 2014-2015, with the majority being invested in New York. GLOBALFOUNDRIES has created nearly 3,000 direct jobs in New York and thousands more indirect jobs in the United States since 2009.
GLOBALFOUNDRIES will acquire and operate existing IBM semiconductor manufacturing operations and facilities in East Fishkill, New York and Essex Junction, Vermont, adding capacity to serve its customers and thousands of jobs to GLOBALFOUNDRIES' workforce. GLOBALFOUNDRIES plans to provide employment opportunities for substantially all IBM employees at the two facilities who are part of the transferred businesses, except for a team of semiconductor server group employees who will remain with IBM. After the close of this transaction, GLOBALFOUNDRIES will be the largest semiconductor technology manufacturing employer in the Northeast.
GLOBALFOUNDRIES will also acquire IBM's commercial microelectronics business, which includes ASIC and specialty foundry, manufacturing and related operations and sales. GLOBALFOUNDRIES plans to invest to grow these businesses.
Also weighing in on the announcement was US Senator Bernie Sanders (I-Vermont): “Amid all of the rumors and speculation of the last few months, this has been a very difficult period for the highly-skilled and dedicated employees at the Vermont IBM facility. Now, with the purchase of the plant by Globalfoundries, a new era is beginning. We all hope that this new relationship will bring economic security for the employees and for the entire community. I look forward to working with the employees, Governor Shumlin and the new ownership to make this new relationship a success.”
Representative Peter Welch (D-Vermont) said in a statement: “After much speculation, the highly skilled employees at IBM Vermont now know with certainty that GlobalFoundries will purchase their extraordinary facilities,” said Welch. “What they know, what Vermonters know, and what GlobalFoundries will soon discover, is that the work force and facilities at the Essex Junction plant are second to none in quality, innovation, and productivity. I look forward to working with Governor Shumlin, IBM employees, and the state's business community to ensure that the plant continues to be a leader in semiconductor manufacturing.”
House Speaker Shap Smith sent the following statement: “The ingenuity of Vermont's workforce has been key to the development of IBM’s Essex Junction facility as one of the country's premier microelectronics manufacturing centers. With today's announcement that ownership of IBM's Essex Junction facility will transition to GlobalFoundries, Vermont's workforce is once more presented with an opportunity for growth. I am pleased to learn that GlobalFoundries plans to retain the present workforce and continue operations in Vermont. It is my hope that with new management, energy and investment, GlobalFoundries's Vermont workforce will continue to distinguish itself as a leader on the global stage. I look forward to working with GlobalFoundries, its management and its employees to ensure that the Essex Junction plant continues to be a world class manufacturing facility.”
GLOBALFOUNDRIES 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. The company’s three 300mm fabs and five 200mm fabs (BTV, as the Vermont plant is called after the Burlington airport designation, is a 200 mm fab) provide the full range of process technologies from mainstream to the leading edge. This global manufacturing footprint is supported by major facilities for research, development and design enablement located near hubs of semiconductor activity in the United States, Europe and Asia. GLOBALFOUNDRIES is owned by the Mubadala Development Company. For more information, visit http://www.globalfoundries.com.
ARMONK, N.Y., and SANTA CLARA, Calif., - 20 Oct 2014: IBM & GLOBALFOUNDRIES