Fifty-six years after International Business Machines came to Vermont, the multinational technology behemoth is on its way out the door.
IBM announced Monday morning that it plans to transfer its semiconductor business to GlobalFoundries, a California company wholly owned by the Emirate of Abu Dhabi. Included in the deal are IBM’s Essex, Vt., and East Fishkill, N.Y., research and manufacturing facilities, which GlobalFoundries pledged to keep open “for the foreseeable future.”
“While it’s almost impossible for any business to make open-ended commitments, we can say that we have no plans to reduce the workforce at this time,” said GlobalFoundries spokesman Travis Bullard. “This is a growth announcement for GlobalFoundries, as we intend to extend job offers to nearly all of the employees in the acquired businesses, adding more than what is currently 5,000 jobs to our payroll.”
The deal, which must be approved by federal regulators, would provide GlobalFoundries with “thousands” of IBM patents and “world-class technologists,” the companies said in a joint statement. It would also make the plant’s new owner an “exclusive” source of server-processor chips for the next 10 years.
The terms of the agreement, nearly a year in the making, reflect how badly IBM wanted to rid itself of its chip division, which lost $700 million last year. The company plans to pay GlobalFoundries $1.5 billion over three years, minus $200 million in working capital, to take the unit off its hands.
In a conference call announcing disappointing third-quarter earnings Monday morning, IBM chief financial officer Martin Schroeder called the deal an important step away from its legacy hardware businesses — and toward a data-focused future in cloud computing.
“We just took a bold step in our transformation, going ‘fab-less’ with the divestiture of our semiconductor manufacturing business,” Schroeder said, referring to chip fabrication facilities. “We have world-class technologists and intellectual property, but this is a capital-intensive business which has been challenging for us without scale.”
Employees at IBM’s Essex plant have been on edge since the financial press reported early this year that the company was looking to ditch its chip division. But in the statement announcing the transfer, the companies said that 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.”
According to IBM spokesman Jeffrey Cross, “Employees do not need to reapply for jobs; they just transition over, with pay and benefits that will be comparable to what they receive today.”
Gov. Peter Shumlin addresses the sale of IBM's chip division Monday morning in Burlington.
State and local leaders alike reacted to the news with a note of optimism Monday morning at a press conference organized by Gov. Peter Shumlin at the Lake Champlain Regional Chamber of Commerce’s headquarters in downtown Burlington.
“There’s been rumors going around for, as you know, a long time — and that’s rough on the workers at IBM,” said Essex Selectboard chairman Max Levy, who called his town “ground zero to this deal.” IBM owns 725 acres in Essex and Williston.
“It’s excellent news that they intend to keep the plant open,” echoed George Tyler, president of Essex Junction’s board of trustees. “Nevertheless, it is a seismic shift for our community. We have been an IBM community for half a century … Although it’s sad to see IBM leave, we look forward to the opportunity being presented to us by GlobalFoundries.”
Shumlin said he first learned details of the deal Sunday night at 9 p.m.
“It’s good news for Vermont because GlobalFoundries is in the chip-manufacturing and development business,” he said. “That’s what they do.”
Since it bought Advanced Micro Devices’ manufacturing arm in 2009, GlobalFoundries has become the world’s second-largest chip producer. It operates seven fabs in Singapore and Germany and has been building a $10 billion facility in Malta, N.Y.
Shumlin said he came away from phone conversations with GlobalFoundries chief executive officer Sanjay Jha and IBM vice president John Kelly feeling optimistic about the Essex plant’s chances.
According to Shumlin, Jha “indicated to me that they intend not only to keep the hardworking, dedicated, innovative employees — over 4,000 that are currently working [in Vermont] — but that their hope going forward is to continue to expand and find ways to continue to compete in this business.”
Last winter, Shumlin’s administration negotiated a deal with Green Mountain Power to freeze IBM’s electric rates for three years. He worked with the legislature to create a $4.5 million Vermont Enterprise Incentive Fund, which can be doled out to companies to attract or retain major companies.
Shumlin said Monday it was too soon to say whether he would seek to direct the money to GlobalFoundries, but he committed to working with the company to invest in Vermont.
“All I can say is we’re going to do whatever it takes to — we’re going to do whatever we can do to partner with GlobalFoundries to make sure that we are a great host of great jobs and great innovation,” he said.
Shumlin said he will appoint a new “economic development and infrastructure advisory team” to help navigate the changed landscape. Members, he said, would include Merrill Lynch financial adviser Harlan Sylvester, Sugarbush owner and president Win Smith, Vermont Economic Development Authority executive director Jo Bradley and REM Development owner Bobby Milller.
Asked whether Vermont should be worried that IBM had to pay big money to get its chip unit off its hands, Shumlin said, “I do not believe that GlobalFoundries would buy this business if they didn’t believe that they could be the world leader in this business and make money in this business. And obviously that’s the assessment they’ve made by going into this ownership of this company.”
One unknown is whether federal regulators will balk at the prospect of a foreign-owned company taking control of a plant that produces sensitive chips for the Department of Defense. Over the past decade, Sen. Patrick Leahy (D-Vt.) has helped the Essex plant secure hundreds of millions of dollars worth of contracts with the federal government to manufacture chips in a secure product pipeline.
John Tracy, Leahy’s state director, said at the press conference that the sale would trigger a review of the program and that Leahy “will do what he can to make sure that we have a secure domestic source of microelectronics in the US.”
“Bottom line is nobody does it quite like the facility at IBM/Essex, and that’s what the US government has come to depend on,” Tracy said.
During Shumlin’s remarks, the governor pulled a smartphone from his jacket pocket and held it up for a crowd of business leaders, politicians and journalists crammed into the chamber’s conference room.
“Let’s remember that the demand for these chips that we make in Essex Junction is robust — that you can’t possible buy a decent gadget like this without having at least one, and sometimes eight or nine chips, made right here in Vermont,” he said. “I’m optimistic about our future and excited about this development,” he said.
Later Monday, Shumlin met with Jha and Kelly at the Essex facility as the two spoke with employees about the deal. In a statement released after the meeting, Shumlin called it “very productive.”
“I reiterated my administration's commitment to working closely with the companies to maximize Vermont's opportunities as they make this transition,” he said. “I learned that Dr. Jha is excited about Vermont and this opportunity for his GlobalFoundries. There is far more demand than supply for the specialized chips made by this fab, and GlobalFoundries is eager to use this strategic acquisition to grow its business with a tremendous workforce deeply rooted right here in Vermont. I assured Dr. Jha that Vermonters are united in our resolve to be great partners in this next phase of chip production and development here."