Yesterday, the Financial Times cited familiar sources (paid subscription or free metered view) indicating that IBM may be exploring a possible sale of its semiconductor division in a move that could see Big Blue sever its ties with the core part of its computer hardware business. That story was echoed today by a separate article published in the Wall Street Journal.
The Journal report cites its sources indicating that IBM may be seeking a buyer for its semiconductor fab operations but will likely retain its proprietary chip design capability.
IBM’s semiconductor business represents a true vertical integration of the company’s IT hardware value-chain. However, the division has been losing money and the capital investment required to stay ahead of today’s chip design technology curve is incredibly expensive.
If IBM does decide to go ahead with such a sale, the obvious question is who would be likely buyers. In its reporting, FT notes that the pool of potential buyers is extremely small, namely three manufacturers that already have close production and licensing ties with IBM. The publication cites: Samsung, TSMC and Global Foundries as such candidates. From our lens, either of these potential buyers could benefit from having a U.S. based fab presence, especially since energy costs have become far more cost competitive across the U.S.
One other potential wildcard name we would dare to whisper is Apple which relies on two of the potential suitors for its current chip fabrication supply needs. Such a move, although risky and rather expensive, would insure strategic vertical integration for Apple’s proprietary processor and other semiconductor component needs that will make-up its future products. The company already relies on separate chip design firms. It could further open broader opportunities to expand a manufacturing presence within the U.S. and allow cash hoarded at off shore countries to be re-invested domestically. Apple’s contract manufacturer Foxconn has been investing in a production facility in Pennsylvania and has been seeking out feelers from six other U.S. states to potentially invest in multiple component manufacturing plants. That is the basis of a U.S. or North America based high tech value-chain.
Of course, Apple may have other, more pressing strategic priorities. This week, the company shelled out $14 billion to re-purchase its own shares which have plunged in value of late.
With activist investors seeking a cut at Apple’s cash pile, who knows what will happen!