No More IBM Chips? Company Looks to Sell Its Semiconductors

Source: http://www.flickr.com/photos/lisboncouncil/

Source: http://www.flickr.com/photos/lisboncouncil/

International Business Machines (NYSE:IBM) is reportedly looking to sell the entirety of its semiconductor business, which would represent the biggest business shift for the company seen in over a decade, according to people familiar with the matter who spoke to the Financial Times.

The Financial Times sources said that the company has hired Goldman Sachs (NYSE:GS) to look into finding possible buyers for the business. IBM is not completely dedicated to the idea of selling, and may be interested in entering into a partnership with another company. The sources didn’t tell the Financial Times what the value of IBM’s semiconductor business is.

The news comes after last month’s sale of the company’s low-end servers to Chinese tech giant Lenovo (LNVGY.PK). Lenovo purchased IBM’s x86 server business for $2.3 billion, though the deal still needs to be approved by U.S. regulators.

IBM and Lenovo have a long history together, and Lenovo said the companies would continue to work together on the server businesses that Lenovo is acquiring from IBM. Back in 2005, Lenovo purchased IBM’s Thinkpad PC business, and has since become the world leader in PCs. Despite the company’s success in the PC realm, Lenovo is looking to expand into mobile and server technologies as the PC market worldwide continues to shrink.

Selling off the company’s semiconductor business would be a shocking change for a company that bases most of its technology on its semiconductor chips. Technology — including the artificial intelligence behind IBM’s smart computer named Watson — would not exist if not for IBM’s semiconductors. Some have gone so far to say that such a move would result in IBM moving away from the tech sphere as a whole.

“I’d be shocked — there would be no Watson without [IBM’s] Power chips,” said Rick Doherty, an analyst at Evisioneering in New York, told the Financial Times. “Take away the Silicon part, and IBM may not be the tech giant it is 10 years from now.”

IBM has been struggling recently, having reported its seventh straight quarter of losses at the end of last month. Demand for both IBM’s hardware and services has steadily dropped as the company failed to transition quickly enough to mobile. Revenue in IBM’s systems and technology unit, which includes the hardware business, dropped 26 percent in the fourth-quarter, representing the ninth consecutive quarterly decline in year-over-year revenues for that unit.

The Financial Times pointed out that while the company’s semiconductors are used in much of IBM’s technology and account for a significant portion of its intellectual property, IBM has been moving away from hardware to focus on software and services. The Wall Street Journal noted that IBM has lost some key semiconductor customers recently, including Microsoft (NASDAQ:MSFT) and Sony (NYSE:SNE), both of which have switched from IBM’s chips to those made by Advanced Micro Devices (NYSE:AMD) for the latest generation of their video game consoles. Selling the semiconductor business could just be another part of CEO Virginia “Ginni” Rometty’s turnaround plan.

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