IBM wants some money back on the promises GlobalFoundries made, just when the IPO is due.
BACK IN 2014, GLOBALFOUNDRIES signed a 10-year $1.5 billion contract with IBM to build PowerPC chips. As part of the deal, the company got IBM’s 14nm chip business, including designs and two fabrication plants, one of which was a 14nm 300mm wafer plant. This divested IBM of its fabrication capability, which had lost $700 million the year before. However, 14nm chips were beset by production difficulties, and the 10nm project hit technical hurdles and was canned. IBM would have to wait for 7nm, only that was canceled, too, as GlobalFoundries decided to exit the high-end chip market in 2018. IBM was displeased, and has broken out the lawyers, demanding $2.5 billion of compensation for having its chip roadmap trashed.
What went wrong? Well, a high-end chip business needs high-end investment, which you can only justify with big orders, which it didn’t get. AMD’s business went to TSMC, and IBM’s orders wouldn’t cover the bills. Meanwhile, IBM found a cheaper source for 7nm silicon at Samsung. However it is the timing of this case that has raised eyebrows. GlobalFoundries is preparing for an IPO, a potential $30 billion deal, so this sudden decision to sue looks opportunistic. GlobalFoundries’ response says it is a “misguided and ill-conceived effort by IBM’s law department to try to extract an outlandish payment … that IBM knows it is not entitled to.” Tough talk.
–CL