The implications of IBM selling its chip manufacturing business

This will not be an easy divestiture like the x86 business, as IBM's influence is felt beyond its walls.

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A report late last week in the Wall Street Journal says IBM's chip manufacturing business may be the next piece of the company to be sold. The story was covered fairly far and wide, including by us, but in looking at some of the online chatter and a few headlines, some people are misunderstanding exactly what Big Blue is up to.

The plan is for IBM to sell its chip manufacturing business, but IBM would still continue to design chips. Some discussions and headlines have incorrectly said IBM wants to sell its "chip business," when it only wants to sell its fabrication facilities.

Selling its chip business would be ludicrous. If it sold its chips business, it might as well dump the whole hardware segment. IBM is the last man standing in the RISC market with its Power processor, using in System P servers, which includes the Watson supercomputer, as well as its mainframes. IBM showed off the Power 8 processor, likely due out this year, at last year's Hot Chips semiconductor conference.

The Financial Times reported that IBM hired Goldman Sachs to search for possible buyers for the business and that IBM "is not wedded to the idea of selling and could also seek a partner with which to create a joint venture for its semiconductor operations." Potential buyers mentioned include GlobalFoundries, Samsung and Taiwan Semiconductor Manufacturing Co (TSMC).

However, this deal will not be as cut and dried as the x86 server business sale to Lenovo. For starters, IBM is a chief member of the Common Platform alliance, an alliance between IBM, Samsung and GlobalFoundaries to leverage the combined expertise of the three to address IC design and manufacturing challenges.

IBM is clearly the alpha dog in this trio, and if it bails on fabrication design, the alliance could fall apart and hurt Samsung's and GF's abilities to maintain cutting edge semiconductor design. The partnership licensed a 20nm manufacturing technology to UMC, another Taiwan chip maker, which helped it stay competitive with TSMC.

There is also the concern that with IBM out of the business, there would be no one left to champion silicon-on-insulator technology as an alternative to the CMOS design used by Intel and TSMC. This is all inside baseball, but it does leave the question of whether chip design will continue to be innovative with all the foundries using just one type of design.

Then there's the question of whether any of these partners, even the mighty Samsung, can fund and finance the former IBM chip business at the same level as Big Blue and maintain that level of innovation that IBM brings. It leads the tech field in patents every year.

IBM Microelectronics is not the sexiest side of the company nor the highest profile, but you do depend on it, one way or another. IBM is the largest supplier of custom logic chips in the world, according to Gartner, and its products are found in everything from smart phones to routing/switching stations and 4G networking equipment.

The company is also the creator of and leading vendor in silicon germanium (SiGe) technology. It's known for being able to handle higher signals with less power leakage. IBM has reportedly shipped more than one billion SiGe chips for products including cell phones, wireless gear, TVs and GPS devices.

The bottom line is this will not be an easy sell. IBM has to find the right partner to help maintain the levels of technology excellence it has established and not disrupt the chip manufacturing industry. The ripple effect of this could be felt very far and wide across the semiconductor sector.

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