BURLINGTON — International Business Machines will pay $1.5 billion to unload its semiconductor manufacturing unit, the company announced Monday.
GlobalFoundries, which is owned by the emirate of Abu Dhabi, is acquiring fabrication plants in Essex Junction and Fishkill, New York, and is expected to retain most of IBM’s employees at those facilities, the company told state officials.
GlobalFoundries will maintain operations in Essex. IBM is Vermont’s largest private-sector employer with an estimated 4,000 employees — down from about 8,000 in 2001.
Shumlin said workers will not have to reapply for their positions and will not be expected to relocate.
The transaction, which has been in the works for months, is expected to close in 2015, pending regulatory approvals. GlobalFoundries will receive the money as a cash consideration over three years, and IBM will receive $200 million in assets. IBM’s net cost for the deal is $1.3 billion.
GlobalFoundries also will become IBM’s exclusive provider of server processor semiconductor technology for 22 nanometer (nm), 14nm and 10nm semiconductors for the next 10 years. IBM will continue a previously announced $3 billion investment over five years for semiconductor technology research.
At a standing-room only news conference Monday morning in Burlington, Gov. Peter Shumlin led a parade of state and local officials hailing the transaction as the “best possible outcome” for Vermont.
IBM’s exit
Rumors about the sale of the plant and possible job losses have circulated for months. “We’ve been on pins and needles,” Shumlin said of IBM’s long, slow process of divestment.
The state’s relationship with IBM has been excellent since the company set up shop in Vermont in the 1960s, but the company’s priorities have shifted, he said.
Ginni Rommety, the CEO of IBM, said in a quarterly earnings report Monday morning that divesting the semiconductor manufacturing unit will free up capital for strategic growth areas for the company: cloud-based computing, big data and analytics, and social, mobile and security services. IBM shares dropped 7.1 percent in the third quarter of this year, according to Bloomberg News.
GlobalFoundries’ ownership of the micro chip manufacturing arm makes sense, she said, because the company’s core focus is production. GlobalFoundries has money to invest in the capital-intensive enterprise, and the global scale to turn a profit.
Shumlin cited IBM’s local workforce as the primary asset that will make the acquisition valuable to GlobalFoundries, which produces semiconductors in other facilities around the globe.
“I think we should feel comforted we have a company in this business that wants to be in it,” Shumlin said.
GlobalFoundries’ entrance
George Tyler, president of the Essex Junction village board of trustees, said he was relieved that GlobalFoundries did not intend to close the plant, as many industry analysts had predicted.
“Nonetheless, it is a seismic shift for our community,” Tyler said.
He and Max Levy, chair of the Essex Town selectboard, said they will work with the state to accommodate and support GlobalFoundries in the transition.
Shumlin said he would meet Monday afternoon with Sanjay Jha, the CEO of GlobalFoundries, along with John Kelly, a senior vice-president and director of research at IBM. The governor said he learned of the ownership transfer Sunday night.
Jha said in an IBM news release Monday that the acquisition broadens the company’s potential. GlobalFoundries will acquire thousands of patents and experienced technical teams as part of the deal.
“This acquisition further strengthens advanced manufacturing in the United States, and builds on established relationships in New York and Vermont,” Jha said.
GlobalFoundries’ footprint in New York vastly outstrips that of Vermont. The company, based in Silicon Valley, is a subsidiary of Mubadala Technology, which is wholly owned by the emirate of Abu Dhabi.
GlobalFoundries entered the semiconductor market in 2009. In July of that year, it started construction of a plant in New York. The fab, as semiconductor manufacturing plants are known, near Albany in Saratoga County, is valued at roughly $6 billion. Planned expansions to the plant will more than double its value.
New York state has offered GlobalFoundries about $1.865 billion in financial incentives to establish itself in the state, according to a recent situational analysis of IBM’s plant in Essex Junction by the Greater Burlington Industrial Corp.
In May, the Vermont Legislature budgeted for a $4.5 million Enterprise Incentive Fund, which Gov. Peter Shumlin can tap at his discretion with limited legislative oversight. He said it is too early for any discussion about using the fund.
Shumlin said Monday morning that he is assembling a small advisory team to inform his relationship with and outreach to GlobalFoundries. It consists of Harlan Sylvester, chair of the Governor’s Council of Economic Advisors; Win Smith owner of Sugarbush Resort; Jo Bradley, CEO of the Vermont Economic Development Authority; and Bobby Miller, of R.E.M. Development Co. He said other members may be named in the future.
“What I wanted is a small group of people who understand Chittenden County, international business and transitions like this to advise me on all the tools we can use to ensure this partnership is successful,” Shumlin said.
He said he is not interested in asking for promises from GlobalFoundries, but in supporting its ascension to the leading spot among global semiconductor manufacturers. He said the transition of the Essex Junction plant represents an opportunity to “reaffirm” Vermont’s global role in semiconductor manufacturing.
lessons learned
Lt. Gov. Phil Scott said Monday morning at the news conference that the sale clears the slate to change the way Vermont does business with large companies.
He stopped short of saying that the state could have done anything to prevent IBM’s exit, but he took the opportunity to say it can do more to work with GlobalFoundries.
“We need to establish policies that make the business climate more conductive to growth for large employers such as IBM,” Scott said.
Shumlin said areas he will look at first include the new owner’s infrastructure needs on the 60-plus acre IBM property, as well as permitting and workforce development.
Levy and Tyler, of Essex and Essex Junction, respectively, said after the news conference that they’re eager to explore how undeveloped land can be utilized.
Whether GlobalFoundries may want to lease or sell parts of the Champlain Valley Technical and Innovation Park, which it will acquire with the plant, the local officials said they welcome any chance to get more industry on the site.
“Diversifying the economic base is critical moving forward,” Levy said.
He said the long and slow attrition of IBM’s local workforce has demonstrated the peril of relying too much on any one business.
Editor’s note: This article was updated at 2:25 p.m. Monday.