Wells Fargo: IBM Chip Deal Could Boost Net

International Business Machines Corp.'s (NYSE: IBM) long-suffering chip-making operations got the coup de grace Monday when it agreed to pay $1.5 billion to the government of Abu Dhab to take the business of its hands.

Summit's Srini Sundararajan called the deal "a non-event" in the semiconductor industry.

"That is sad considering that there were times in the 90s that IBM and Intel competed with one another over bragging rights for technological advancements," Sundararajan said in a research note.

Wells Fargo's Maynard Um said dumping the business could add $1.20 per share to IBM's annual earnings, even while shaving nearly $7 billion from revenue. Um said the deal seems to suggest IBM's remaining hardware businesses are profitable.

IBM expects to purchase chips for its mainframe computers from Globalfoundaries "at market cost" according to its Chief Executive Virginia M. Rometty.

GlobalFoundaries was formed in 2009 when Advanced Micro Devices Inc. divested its semiconductor production business.

The resulting company is owned by Abu-Dhabi-based Advanced Technology Investment Co., part of the Abu Dhab government.

Sundararajan said that given its foreign ownership, U.S. government orders for chips from "trusted foundaries" may migrate to Micron Technology, Inc. and Intel Corp.

Employment at the operation's factories in New York's Hudson Valley and in Essex, Vermont, will continue under the agreement, according to the Albany Times-Union, although it didn't say how many of the 7,000 workers would retain jobs.

IBM, which missed quarterly earnings expectations earlier Monday, traded recently at $168.90, down 7.2 percent.