IBM -- or is it International Bumbling Machines?
6. Big Blue divests disk drives, PCs -- and maybe ICs
By Mark LaPedus
Silicon Strategies
12/20/2004, 12:43 PM ET
SAN JOSE, Calif. — IBM is undergoing a sea of change. In recent times, Big Blue has exited two major industries that it pioneered: disk drives and PCs.
Are semiconductors next? Or, for that matter, has once-proud International Business Machines transformed itself into "International Bumbling Machines"?
Recently, IBM sold its disk drive business to Japan's Hitachi Ltd. And in December of 2004, the computer giant sold its PC business to China's Lenovo Ltd., formerly known as the Legend Group.
On the surface, IBM appears to be shedding its non-core businesses to concentrate on software and services. But with little or no fanfare, it also appears to be divesting its interest in semiconductors, leaving some to believe that the company will one day exit the silicon foundry business and become fabless.
In May, for example, IBM took a step to jettison its internal chip-assembly and packaging operations, by announcing a major deal with Amkor Technology Inc. As part of the complex deal, Amkor (Chandler, Ariz.) acquired IBM's Singapore test operations. Amkor also bought the land and a 950,000-square-foot manufacturing complex that was built for IBM in Shanghai, China. In addition, Amkor received the majority of IBM's chip-assembly business (see May 17 story).
Then, in October, Agilent Technologies Inc. (Palo Alto, Calif.) entered the flat-panel display test market, by acquiring IBM's thin-film transistor (TFT) test assets (see Oct. 12 story).
While IBM has been shedding these operations, the company continues to struggle in the silicon foundry business. At one time, though, IBM looked like a contender in the foundry sector — at least a year or so ago.
Foundry flop?
In the beginning, IBM garnered a long laundry list of impressive customers. For example, IBM announced foundry deals with Analog Devices, Broadcom, Intersil, Nvidia, Qualcomm, among others. IBM has also formed major technology partnerships with Advanced Micro Devices, Chartered, Infineon, and Samsung.
So far, though, IBM has not been a threat to Taiwan in the foundry business, as previously thought. Putting its vast technology portfolio into manufacturing has been a problem. The company, for example, stumbled and lost ground, especially when it decided to deploy a spin-on glass as the material of choice for low-k dielectrics. The material, dubbed SiLK, was originally developed by Dow Chemical Co.
Even more troubling is the company's fab yields. In the first quarter of the year, IBM disclosed it lost $150 million within its struggling semiconductor unit alone, due to ongoing chip yield issues and a drop in intellectual-property (IP) revenues. One of the problems is ongoing yield issues within its 300-mm fab in East Fishkill, N.Y. IBM's chip yields "are not quite where we would like them to be," confirmed John Kelly III, then senior vice president and group executive of IBM's Systems and Technology Group, in May (see May 12 story).
Sources said there is no doubt that IBM's Microelectronics Group is struggling, but the company has too much at stake to exit the foundry business. "Maybe (IBM's chip unit is) breakeven or getting close to it," sources said. "But I think they will be around for the next five years. From then on, it's hard to tell."
Sources added that there are two camps at IBM. One camp, led by former CFO John Joyce, was reluctant to invest and expand the semiconductor unit, according to sources. "The overwhelming position within IBM says, 'Just get the server chips out, fill up the fab and break even,' " sources said.
In what appears to be a respite for IBM's chip unit, Joyce was shifted to another position within the company. But IBM's semiconductor champion, Kelly, was also recently shifted into a new role, thereby raising questions about its commitment to semiconductors. In October, Kelly took a newly created job within IBM that will focus on intellectual property issues related to Linux and other forms of computer networking software.
One wonders if the shakeup within the group reflects the poor performance in its chip unit. Still, there are plenty of irons in the fire at IBM Micro.
For example, Sony Corp. and Sony Computer Entertainment Inc. last February said that they would make an investment of about 120 billion yen (US$1.1 billion) in the fiscal year from April 2004, which would be divided between three facilities; its own fab, a joint operation with Toshiba Corp. and a line at IBM's East Fishkill fab in New York.
Sony is aiming to establish mass production of chips using 65-nm manufacturing process technology on 300-mm diameter wafers by collaborating with Toshiba for embedded DRAM technology and with IBM for silicon-on-insulator (SOI) technology.
About 36 billion yen (US$325 million) would be invested in a 300-mm SOI line at IBM's East Fishkill fab. The IBM fab and Sony's 300-mm production lines would fabricate 65-nm generation chips, such as the previously disclosed "Cell" processor using SOI process technology. The "Cell" processor is being made under a joint development deal by IBM, Sony, and Toshiba. IBM expects to begin pilot production of "Cell" microprocessors and other chips for Sony at East Fishkill, during the first half of 2005. |
